Should Apple be Purchased, Sold, or Maintained in the Year 2025?
2025 saw Apple (AAPL 1.2%) shine once again, with its stock recording a whopping 33% return, cementing its position as the largest publicly traded company by market capitalization, valued at an impressive $3.7 trillion. As investors ponder on the tech giant's room for growth, let's dive into its current standing, management's capital allocation strategy, and projections for 2026 to ascertain whether it's a buy, sell, or hold.
Apple's performance in the limelight, but growth is moderating
The latest financial data showcases Apple's remarkable revenue generation compared to its competitors, raking in an astounding $391 billion during its fiscal year 2025. Alphabet (GOOG -0.5%) and Microsoft (MSFT -0.5%) followed close behind with $339.9 billion and $254.2 billion, respectively, during the same period.
However, Apple's year-on-year revenue growth dipped to a modest 2%, with Alphabet's soaring by 10.6% and Microsoft's by 11.7%.
Examining Apple's sales by category presents a mixed picture. The iPhone, its largest segment, clocked in at $201.2 billion, marking a mere 0.3% increase. On the other hand, sales drooped in the iPad and wearables/home accessories sectors by 5.7% and 7.1%, respectively.
But the bright spot remains its services segment, which includes revenues from Apps and in-app purchases, subscriptions, Apple Pay, and advertisement placements. For its fiscal year 2025, the services sector generated $96.2 billion, signaling a robust 12.9% year-on-year growth.
Despite lumpy sales growth, Apple's free cash flow (FCF) remained astonishing, with a record $108.8 billion generated during its fiscal 2025, signifying a 9.3% increase compared to the previous year. Alphabet and Microsoft managed only $55.8 billion and $72.7 billion, respectively, over the trailing 12 months.
Apple rewards its shareholders generously
Armed with its substantial FCF, Apple's management repays shareholders through dividends and share repurchases. The company currently pays a quarterly dividend of $0.25 per share, equivalent to an annual yield of 0.4%. Although the yield appears insignificant compared to other dividend stocks, predictions suggest steady annual increases in the foreseeable future. With 13 consecutive years of dividend increases behind it, a low payout ratio of 16.3%, and a track record of dividend growth, investors can expect their income to gradually increase.
Furthermore, Apple is an aggressive share buyer, augmenting each shareholder's ownership stake without necessitating additional investment. Share buybacks are subject to a 1% tax, but they are generally more tax-efficient than dividends. In 2025 alone, Apple managed to eliminate 2.2% of its outstanding shares, and its five-year reduction stands at an impressive 13.8%. In 2025, the company spent an astounding $95 billion on share repurchases and rolled out a fresh $110 billion buyback program in May.
Apple positions itself for future growth through AI
Like other tech titans, Apple has allocated substantial resources to AI as a potential growth driver. The company invested $31.8 billion in research and development during its fiscal year 2025, marking a 4.9% increase from its fiscal year 2024. During its recent earnings call, CEO Tim Cook discussed the potential of Apple Intelligence, the company's built-in AI system, to revolutionize user interactions with technology.
Although still in its nascent stage, management believes that Apple Intelligence will propel its services revenue by "double digits" and the company's total revenue by "mid-single digits" in its fiscal Q1 2026 compared to its fiscal Q1 2025.
Ultimately, deciding on investing in Apple stock requires considering its valuation. A critical metric in this evaluation is the price-to-free cash flow (P/FCF), which gauges the stock's market valuation relative to its FCF. At the time of publication, Apple's P/FCF is nearly 36 -- a five-year high. Compared to Alphabet and Microsoft, which trade at a higher P/FCF of 44, Apple appears more reasonably priced. However, the potential of the AI boom has yet to fully materialize, implying that the stock's current valuation may be rich.
In conclusion, despite the stock's hefty valuation, Apple remains an enduring long-term investment opportunity. Investors can expect steady income growth through dividends and share repurchases while eagerly awaiting the fruition of the company's AI strategy. If the AI success story unfolds as anticipated, it could catalyze a transformative growth stage for Apple.
- To further bolster its financial strength and attract investors, Apple is actively contemplating potential investment opportunities in 2025, particularly in promising sectors such as artificial intelligence and finance.
- Given Apple's remarkable financial performance and the potential growth of its AI strategy, financial analysts suggest that assessing the stock's value in terms of its price-to-earnings (P/E) ratio or price-to-sales (P/S) ratio may not adequately reflect its true worth in the investing landscape of 2025.
- As we move towards 2025, many investors will be interested in knowing if Apple's strategy of allocating funds towards AI research and development will lead to significant returns in its stock price, making it a valuable investment opportunity in the long run.
- With Apple's AI-driven innovation projected to generate substantial growth, investors need to critically evaluate whether the tech giant's current stock price accurately reflects its potential for future revenue, earnings, and profitability in the context of the broader investing landscape in 2025.
