r/stocks
Am I crazy or is there underappreciated risk of AAPL re-rating significantly downward?
AAPL faces downside risk due to high PE, rising component costs from AI cycle, delayed base iPhone releases, and macro headwinds.
- High trailing PE of ~37x is unjustified given single-digit top-line growth normalization.
- Rising RAM and storage costs driven by the AI supercycle will compress hardware margins.
- Delaying base iPhone 18 release narrows the consumer funnel and risks revenue drag.
Right now Apple trades at a roughly 37 trailing PE and has generally been growing topline in the single digits the last few years. Q12026 and Q42026 were strong quarters that bucked that trend with growth in the teens, but I think the back half of this year we are likely to see things normalize downward. When that happens, does this stock still deserve to trade at such a premium?
Upcoming Q4 on hardware will be especially tough for them for a few reasons:
- It's a tough hardware comp cycle. Consumers don't need to buy a phone or computer every year and good cycles like the one Apple had last year means there are potentially fewer buyers this time around.
- They have significant cost challenges. RAM and Storage prices are just going through the roof due to the AI super cycle. This affects BOM across their entire hardware lineup and, outside mac-mini, Apple isn't particularly levered to selling hardware that is in demand due to AI. Future phones and computers will likely be sold at a lower margin than previously.
- Changing iPhone Release cycles will be a headwind to topline. Apple is widely rumored to delay the base iPhone 18 release to 2027, releasing only the Pro and their foldable this year. This will create hardware drag on revenue as consumers delay purchase. Yes, you may get mix-shift upward to the Pro and foldable, but I think this strategy is riskier than people realize. My mental model is that being able to advertise the base price got a lot of folks in the market for buying devices and once they started shopping they later upgraded to Pro models. Only going forward with the top end devices this year at likely even more elevated prices will potentially narrow their funnel.
- Broad macro inflation could begin to drag discretionary spend. Durable goods like phones and laptops have increasingly lengthy replacement cycles. Just like with autos, people could hold off on purchases here as budgets get stretched and prices increase. And with the new phones having the same RAM (at a higher price) there is likely less reason to upgrade hardware this cycle. It will take some serious Apple marketing magic to get people to upgrade before they have to.
I'm curious about peoples thoughts. It just feels very expensive given they don't benefit as much from AI as other players and have a ton of headwinds in their core business that the new CEO will have to navigate. My conspiracy theory is that Tim knows tough times are ahead, which is why he's taking a back seat now to protect his legacy.
Yup. Everyone called the last iPhone pro ugly and with very few changes; still made record sales.
The iPhone Fold is also rumored to be coming this year. Expect that phone to have crazy hype.
What makes you so certain? Entry level MacBooks used to be really unaffordable, now they’re not. That can easily capture new users who opted for other cheaper brands
Services is the highest margin product. The more Apple users by any device, the more likely to have users of the highest margin products
They're angling to potentially buy one of these AI players falls after the field inevitably consolidates
Amen.
They are the edge compute leader. They will have private, on device, AI.
They may never do well in gaming, but they are already a local LLM powerhouse.
The whole point of building a laptop to that price point was to bring in new users. Think students who could become buy the more expensive macs as their incomes rise
that is not what oversold means
Well make sure your language is consistent. You say both "cash cow priced in", and "to justify that valuation". Which one is it? Are they valued appropriately, or inappropriately?
All of the Mag7 peers are currently on mad CapEx spends to get into AI and try to win AI. Apple isn't. Apple has so much cash it will be able to buy the AI losers' engineering teams when the fallout hits. They have so much money they can scoop up entire companies that hit the rocks, if they so choose.
There's so much competition in AI right now, to be able to benefit from any winner is an advantage Apple currently enjoys, without the spend or risk.
I'd say Apple's valuation is sustainable. They are high on cash and low on anchoring dependencies like AI CapEx.
There’s just so many people who have an innate desire for AAPL to fail and don’t see beyond the iPhone. They don’t see how huge services has become with insanely good margins. They don’t see wearables as a separate business in itself and they don’t understand that AAPL historically isn’t first to market but when it comes to market it defines and changes it completely.
The Apple brand name is an immense moat. There's many countries where it would take a massive event to make people switch from iPhones. There's countries where iPhones aren't dominant, but it's the phone everyone wants to save for.
I use Android but I can see this.
I think Meta is basically the techno equivalent of cigarettes. Their market is toxicity, they make it and harvest wealth from it. God knows what they are gonna do with capex, but they're still spending on something. I dunno... Any company that blows $80b to create just the worst VR world game when people make indie versions that are better, I can't take seriously as an investment.
Been holding since 1998… I just load up more when the opportunity arises
One Apple a day keeps the losses away.