Investors hoping that Apple's most important product launch of the year will be the next catalyst for its stock price recovery are likely to be disappointed. Apple shares continued to rise after posting its best monthly performance in more than a year in August as tariff concerns eased.
Barring a surprise at Tuesday's event, the stock may lack further upside given that Apple's market capitalization has increased by nearly $430 billion since the end of July and questions surrounding its artificial intelligence strategy remain.
"It's hard to recommend taking or adding to a position ahead of the release, especially after this rally, because we don't expect there to be particularly exciting, buying-inducing features this time around," said Clayton Allison, portfolio manager at Prime Capital Financial. "If Apple continues to be slow on AI, I would be worried about the stock."
Apple is expected to release the iPhone 17 series on Tuesday, which is said to include a new, thinner and lighter version. It is also expected to launch upgraded versions of the Apple Watch and Vision Pro headsets.
The key question is whether these product upgrades are enough to drive Apple's performance growth. This question is particularly important in the context of the current lack of more advanced AI capabilities and the significant changes expected in the next few years, including the launch of a foldable iPhone in 2026.
History is not on the bulls' side, at least in the short term, as Apple's stock price typically falls on the day it releases new iPhones. In the AI era, this risk is even more prominent. If the press conference fails to convince investors that it has made sufficient progress in deploying AI capabilities, it may deepen doubts about Apple's lack of growth and high valuation.
Valuation issues
Although Apple's 10% revenue growth in the third quarter was the fastest in more than three years, growth is expected to slow in the next two quarters. In comparison, Google parent company Alphabet and Meta have faster revenue growth and lower valuations.
Calculated based on the profit forecast for the next 12 months, Apple's current price-to-earnings ratio is about 30 times, ranking second highest among the top six companies in the S&P 500 index after Nvidia and Microsoft.
Although Apple shares have risen 38% since their April lows, they are still down more than 5% for the year, while the Nasdaq 100 has gained 13% over the same period. Apple's current stock price is close to its high point since February, and this new product launch may become a window for investors to take profits as usual.
Bank of America noted in an Aug. 25 report that Apple’s iPhone launches “have historically been a ‘good thing that turns out to be bad’ event.” However, Wamsi Mohan, an analyst at the bank, said the stock usually resumes its gains within 30 to 60 days after the release.
Even without exciting new features, some on Wall Street see another way for Apple to grow: raising prices. And that's something the company hasn't done in years.
High valuations and lackluster performance growth have reduced investors' interest in holding Apple shares. Less than 60% of Apple analysts tracked by Bloomberg recommend "buy"; in contrast, 97% of analysts tracking Microsoft give Microsoft a "buy" rating. Apple shares closed at about $240 on Friday, above the stock's 12-month average price target of $238, indicating that Wall Street does not currently expect continued gains.
"We are willing to continue to own Apple stock, but we are not particularly excited because the valuation is not cheap and the upside is limited," said David Katz, chief investment officer of Matrix Asset Advisors. "While the biggest risks have been mitigated, it will be difficult to usher in a new round of gains unless we see a clearer AI roadmap. If there is good news on AI at this conference, it will be a surprise. I think the stock price will be higher in the long term, but it is unlikely to make a big improvement in the short term."