Apple Inc. shares have been facing challenges in shedding the perception that its growth phase is behind it. The company's new virtual reality headset, the Vision Pro, is unlikely to have a significant impact on changing this view anytime soon.
Starting Friday, Apple will begin accepting orders for the Vision Pro. However, Wall Street analysts are expecting only modest sales of the $3,499 device as it currently lacks the "must-have" features that have made the iPhone a blockbuster success. With limited content available exclusively for the headset, it is expected to remain niche for a couple of years. Denny Fish, a tech sector fund manager at Janus Henderson, stated, "It's hard to ask someone to pay $3,500 for a product where there's a limited amount of content people can't get on their phone."
The overall excitement for the Vision Pro on Wall Street has been lukewarm, with projections indicating a relatively small impact. According to UBS, Apple is expected to ship around 300,000 to 400,000 units this year. At the highest end, the device would contribute $1.4 billion in revenue and a few cents to earnings per share. While these numbers are not negligible, they are considered immaterial for a company that generated $383 billion in sales in fiscal 2023.
Despite its impressive performance in 2023, with a nearly 50% jump in stock price, Apple has struggled since the beginning of this year. The stock has dropped by about 3%, while the Nasdaq 100 Index has fallen less than 1%. Among the seven large-cap stocks that led last year's market rally, Apple and Tesla Inc. have faced the most significant challenges.
The muted expectations for the Vision Pro reflect the broader issues facing Apple. The company has reported four consecutive quarters of shrinking revenue, its worst run since 2001. In a notable snub to the new technology, Netflix Inc. has stated that it has no plans to launch an app for the device, highlighting the lack of interest from rival streaming platforms.
Analysts project that Apple will return to growth in 2024, but with an expected expansion rate of only around 3%, it falls far short of the overall 15% growth expected for the S&P 500 tech sector this fiscal year. In contrast, Microsoft’s revenue is projected to rise by 15% in the current fiscal year.
With a premium valuation of 27 times projected profits, Apple's growth rate might not inspire investor confidence, especially given the prevailing uncertainty surrounding antitrust issues. The stock is priced well above the Nasdaq 100 and its own historical average over the past decade.
Despite a few downgrades in 2024, Apple still has its loyal supporters who emphasize factors such as robust cash flow and share buybacks as counterbalances to growth concerns. The stock has often been seen as a safe haven during periods of market turbulence.
Bank of America recently upgraded Apple's stock to a buy rating, expecting a stronger iPhone upgrade cycle driven by the need for the latest hardware to enable generative AI in 2024-2025.
However, it remains challenging to predict Apple's future revenue growth and identify the next big innovation that will excite consumers. Until then, many believe that the stock will likely remain rangebound. Tom Plumb, the manager of the Plumb Balanced Fund, stated, "However, I do think the stock will be rangebound until it can excite people from a revenue-growth perspective, and there's very little visibility as to what the next big thing will be."