Apple’s stock has risen by more than 10% in just the past month.
Apple (AAPL -2.53%) stock never seems to stay down for long. While it was struggling in the early part of the year, shares of the iPhone maker are now up more than 20% year to date. The stock is trading at a new all-time high, and with a market cap of around $3.6 trillion, Apple is back to being the most valuable company in the world.
But it brings up the question of whether or not the stock has become too expensive. Is it too late to invest in Apple right now, or does it still look like a good buy, even at its current levels?
Apple’s stock is trading at a steep premium
Due to the recent surge in price, shares of Apple are now trading at more than 36 times the company’s trailing earnings. Over the past 10 years, the stock has averaged a much more modest earnings multiple of less than 22.
AAPL PE Ratio data by YCharts
Paying more than 35 times earnings is by no means unheard for growth stocks, but it does, however, leave investors without much of a margin of safety.
And normally, for these types of stocks, the underlying businesses are growing at a fast rate. Apple, however, has recently struggled to generate much in the way of growth. During the first three months of the year, the company’s quarterly revenue of $90.8 billion was down 4% year over year.
One reason investors are willing to look past its slowing top line, however, is due to the boost Apple is likely to receive from artificial intelligence (AI).
Investor expectations are high for artificial intelligence
For a while, there were question marks about what Apple’s strategy would look like for AI. And now, there is much more clarity about that as the company recently unveiled Apple Intelligence, which will run locally on a device, and users will have control over what, if anything, gets sent to the cloud. The AI will help with writing, creating images, and balancing tasks and meetings.
The rollout of new AI-powered iPhones could be what the company needs to beef up its growth rate, and that’s certainly what investors are likely banking on given the surge in Apple’s stock price in recent weeks. But it may take a while for investors to see the benefit of this as it’s not likely until next year that the company fully releases all of its AI features.
Analysts have also been bullish on Apple’s growth prospects, with many of them recently updating and raising their price targets for the stock. But with a consensus analyst price target of just under $224, which is below where the stock trades at today, Apple still looks expensive even when factoring in those upgrades.
Should you buy Apple’s stock?
Apple is one of the top consumer tech companies in the world, but there’s no denying that you’re paying a big premium to own a share of the business. If you’re willing to buy and hold for not only years but decades, then it can certainly still be a good investment to hang on to, but if that’s not the case, you may want to consider buying cheaper growth stocks that may possess more upside in the near term.
Overall, the company has built up a strong customer base over the years, and with an expanding ecosystem of services, there’s still a lot more room for the business to get bigger and more valuable. It’s usually never a bad idea to invest in Apple for the long term, but with its high valuation, it could take a while to earn a high return from the stock.