Apple Investors Just Got Terrible News

Written By Michael Gary Scott

Apple (NASDAQ: AAPL) shareholders are holding onto a successful iPhone 16 launch. Otherwise, the stock could be in trouble. Right now, Apple’s stock trades at a premium price point despite its weak growth prospects, but the iPhone 16 could change all of that.

However, Apple investors received concerning news about the iPhone 16, and it could spell disaster for the stock.

iPhone 16 preorders are reportedly underwhelming

TF International Securities analyst Ming-Chi Kuo monitors several key Apple suppliers to gauge iPhone preorders. The iPhone 16 was announced last week, making this the first weekend of preorder data available, which is crucial in determining overall demand. The last few years have seen fairly weak iPhone demand, with sales barely moving from year to year. Unfortunately, for investors, that trend is starting to move in the wrong direction.

According to Ming-Chi Kuo and his sources, iPhone preorders are down about 13% year over year. This is terrible news for Apple investors, as they needed a successful iPhone 16 launch to justify the stock’s current price.

So it is time to panic-sell? Not necessarily.

There are a few factors at play. First, this is information from suppliers and could have errors. If this information came directly from Apple, then it would be a different story. Second, part of the draw of the new iPhone 16 is that it can run Apple Intelligence, Apple’s take on generative AI. However, some of these features aren’t expected to be available until October, after the iPhone 16 is available to the public.

So, there is still hope that the iPhone 16 will be a successful launch, and I’d caution investors to wait until this year’s holiday season is complete before judging its success or failure.

But one thing isn’t up for debate: Apple needs the iPhone 16 to be a success.

Apple’s growth has been off for nearly two years

Apple is one of those stocks that is trading on its historically strong performance, not its current results. Since 2022, Apple has failed to post any meaningful revenue growth.

AAPL Revenue (Quarterly YoY Growth) Chart

AAPL Revenue (Quarterly YoY Growth) data by YCharts

Basically, Apple’s revenue is still below the peaks it reached in 2022, yet the stock price has significantly climbed since that point. This is partially due to improving profit margins and share buybacks boosting earnings, but the price investors must pay for Apple’s stock has also climbed.

See also  Enhanced Security Measures Taken to Combat Rising Data BreachesStrategic Investments in Cybersecurity Services

Amid a relentless surge in data breaches, U.S. enterprises are fortifying their defenses with cutting-edge tools and services, as detailed in the latest research report by Information Services Group (ISG).

Escalation of Data Breaches

The ISG Provider Lens™ Cybersecurity — Solutions and Services report for the U.S. highlights a notable escalation in data breaches from 2022 to 2023, with healthcare and financial services industries bearing the brunt of these cyber onslaughts. In response, the federal government and states have imposed regulations necessitating companies to bolster their security protocols, further complicating the landscape for enterprise security teams.

Rethinking Strategies for Business Resilience

Doug Saylors, the partner and co-leader of ISG Cybersecurity, points out that recent threats and sophisticated attack mechanisms have unearthed vulnerabilities in vital infrastructure within U.S. corporations. Consequently, Chief Information Security Officers (CISOs) are reassessing their strategies, prioritizing business resilience in the face of evolving cyber risks.

Technological Advancements in Defense

While the demand for cybersecurity solutions and services surges, organizations are streamlining their security technology arrays to drive down costs and maximize resource efficiency. Many are turning to AI technologies to aid in data analysis, enabling them to pinpoint vulnerabilities and fortify areas predicted to sustain the most detrimental impact from cyber breaches.

Adopting Innovative Security Platforms

The report identifies emerging technologies such as quantum computing and passwordless identity access management as rapidly gaining traction. Moreover, on a global scale, platforms like Extended Detection and Response (XDR) and Security Service Edge (SSE) are evolving as indispensable tools for enterprises in combating cyber threats.

Transition to Zero Trust Architectures

To reduce potential attack surfaces and mitigate the fallout from breaches, many large companies are transitioning from traditional perimeter-based security to Zero Trust Architectures (ZTAs). Implementing ZTAs necessitates a skilled workforce and substantial investments in access controls, identity management, and continual verification.

Enhanced Focus on Third-Party Security Risk

Enterprises with intricate supply chains are increasingly vulnerable to attacks on third-party vendors linked to their IT infrastructure. To address this risk, they are scrutinizing vendors' security postures and taking proactive measures to manage risks across their supply chains.

Resilience Among Small and Medium-Sized Businesses

Amidst constrained resources, many small and medium-sized businesses (SMBs) are emphasizing fundamental security practices such as automated patch management and user education. For advanced technologies and expertise beyond their internal IT capabilities, SMBs are turning to managed security services and cloud-based security solutions.

Global Cybersecurity Leadership

ISG's report recognizes various industry leaders across different cybersecurity quadrants. IBM emerges as a Leader in six quadrants, with Accenture, Deloitte, and TCS following closely as Leaders in four quadrants each. The report also identifies Rising Stars — companies with promising potential — including EY and Persistent Systems.

Top Performer in Customer Experience

Zensar Technologies secures the title of the global ISG CX Star Performer for 2024 among cybersecurity providers, based on outstanding customer satisfaction scores in ISG's Voice of the Customer survey.

Insight into the ISG Provider Lens™ Cybersecurity ReportThe Illuminating ISG Provider Lens™ Cybersecurity Exploration

AAPL PE Ratio (Forward) Chart

AAPL PE Ratio (Forward) data by YCharts

While investors used to be able to purchase the stock for somewhere in the mid-to high-20s times forward earnings, that’s no longer the case. At more than 32 times forward earnings, Apple stocks trade for a substantial premium over the broader market’s 23.7 times forward earnings (measured by the S&P 500).

When a stock has that much premium over the broader market, it needs to grow earnings rapidly, which requires strong revenue growth.

While Apple Intelligence and the iPhone 16 were supposed to supply that to Apple, preliminary signs are pointing toward that not working out. Once investors get more official data, this could ignite a larger sell-off in the stock. Until then, Apple is still a very expensive stock that is trading on the promise of future success. There are other stocks out there that are far cheaper and have a clearer path to success than Apple, and investors should consider moving capital into them instead of Apple.

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Keithen Drury has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple. The Motley Fool has a disclosure policy.