Apple's Future: Lower Growth and Tariff Threats Create Concerns

Apple's recent growth has stalled, with a modest 2% revenue increase projected. With potential 25% tariffs looming and competitive pressures from AI advancements, investors should exercise caution before investing. Gains in the past no longer justify current valuations.

Date: 26-05-2025

AI Rating: 5

Overview of Apple's Financial Health: The report highlights that Apple has an average net profit margin of 23% over the past decade, indicating solid profitability. This is a positive metric from an investor's viewpoint, as high profit margins typically lead to robust free cash flow, which Apple demonstrates by returning capital to shareholders in the form of dividends and buybacks.

Revenue and Growth Concerns: Despite the solid history, Apple's revenue growth has stagnated with only a 2% increase in fiscal 2024 and a projected compound annual growth rate of 5% from fiscal 2024 to 2027. These growth rates are below expectations and may signal challenges in sustaining performance. The high price-to-earnings (P/E) ratio of 30.5 further contrasts with past valuations when Berkshire initially bought Apple at a P/E of 10.6, which makes the current valuation seem bloated against slowing growth.

Impact of External Factors: The looming threat of a 25% tariff on iPhones adds another layer of uncertainty. This could amplify costs and potentially squeeze margins, thus affecting both revenue and net income negatively unless Apple can adapt its production strategies. Apple's struggle in AI also raises eyebrows, as innovation in this field becomes crucial for maintaining competitive advantage.

Investment Outlook: Overall, while Apple's financial metrics reveal a history of strong profitability and cash flow, the current challenges in revenue growth, upcoming tariffs, and competitive pressures in innovation cast a pall over its investment appeal. Given these insights, investors need to reassess valuations in light of diminished growth prospects.

Stocks: AAPL BRK-B