Apple Stock- Buybacks Alone Cant Save Apple
June 26, 2025
Apple may be one of the strongest long-term performers inequity markets, but its current valuation is increasingly detached from thecompany’s underlying fundamentals. Rather than being driven by innovation ormeaningful expansion, its stock performance has leaned heavily on financialengineering, primarily being propped up through aggressive share buybacks.
While Tim Cook’s capital allocation strategy has been highlyeffective, the benefit of buybacks diminishes when shares are richly priced,the fundamental issue with buybacks in this case is 1. They rely on valuationsbeing low enough to act as accretive to earnings (they no longer are at roughly 200 a share) 2. They maskunderlying issues fundamental to the company by propping up the order bookwithout real underlying demand. At current valuations, 30+ PE and effectivelyzero growth, not only is the valuation high, which limits the ability of thecompany to significantly reduce float through buybacks, there is effectivelyzero impact on EPS. A 30 PE is a significant premium to the greater market,while there is value to stable cash flows and effective capex, this on its ownis really not enough, a 30 PE with zero growth is obscene.
This reference to zero growth is not an exaggeration, the companyhas not increased revenues meaningfully since 2022 (EPS is flat as well) andthe company does not have the significant investment pipelines other mega-capsdisplay. Service growth has also stagnated with significant focus on regulatoryheadwinds such as within the EU regarding App store policies and anti-competitiveprocesses.
*Apple Revenue History 5y
The company seemingly has done nothing to expand within theartificial intelligence boom and as an extensive user of the Apple ecosystem, thecompany seems to have been left in the dust and has not offered any compellingreason to utilize any of its tools related in any way to industry megatrends.
A deeper dive into Apple’s revenue composition reveals acompany still overwhelmingly dependent on its legacy hardware products, withlimited diversification into transformative growth engines. Apple generatedapproximately $~400 billion in total revenue. Over $200 billion, came from theiPhone alone, a product that hasn’t seen meaningful innovation or growth inseveral years and now faces saturation in developed markets. This level ofsingle-product reliance exposes Apple to outsized risk should smartphoneupgrade cycles lengthen further or competitive pressures intensify, within theUS it already peaked in the mid 60%s.
Beyond the iPhone, Apple’s Wearables, Home, and Accessoriessegment which includes AirPods, Apple Watch, and headsets contributed around $39.8billion (~10% of revenue). While this category has grown quickly in the past,it is beginning to plateau, with AirPods in particular approaching peakadoption. Estimates suggest AirPods now contribute approximately $1520 billionannually. These products, while successful, are still accessories notfoundational growth platforms.
Apple’s Services segment, often touted as the company’slong-term growth driver, brought in $85 billion in FY23, or 22% of totalrevenue. While this is Apple’s most profitable segment (thanks to high-marginrecurring income from the App Store, licensing, ICloud, and digitalsubscriptions), its growth has slowed materially.
Meanwhile, Mac and iPad revenues ~60 billion respectively now combine for just 15% of the business, and both product lines are mature,cyclical, and actually in decline (along with being sensitive to recession risksas these are premium/expensive goods).
Collectively over 75% of Apple’s revenue still comes fromhardware, much of it consumer discretionary and increasingly commoditized.Despite its enormous valuation, the company lacks a breakthrough platformoutside of these products, and its scarcely hyped Vision Pro, a niche,high-cost device which realistically, the broader market does not care about.With few signs of an emerging growth engine and mounting pressures on bothhardware and services, Apple’s revenue mix looks more vulnerable than ever.
On top of an unimpressive development pipeline, the companyhas incredibly negative exposure geopolitically and is one of the mostsensitive companies to tariffs on the broader market, its manufacturing isalmost entirely within China via Foxconn (with threats of individual tariffs onthe company), while Airpods and Ipads are manufactured in Vietnam, also a statewith high tariffs applied. This exposure to tariffs is without question anegative given uncertainty around policy and any significant shocks will hitthe company harder than other companies in big tech. Margins would struggle inany geopolitical back and forth both from pricing concerns and also theinability to truly pass all costs on to consumers, there is a limit to whatconsumers are willing to pay.
US Consumer intent to purchase a new iPhone is at a five yearlow. Meanwhile, India, the company’s so called golden goose for future growth hasfailed to deliver. Despite rapidly increasing purchasing power of the Indian consumer,Apple’s market share has flatlined around ~20% since 2022, trailing behindSamsung, Xiaomi, and other aggressive players in the category. The company’sexposure to policy volatility and lack of meaningful market penetration in keygrowth regions is a serious headwind going forward. The company has stated itis to build manufacturing supply chain within the United States, realisticallythis is incredibly unlikely and would cost tens of billions and years to legitimatelydevelop domestic production capabilities with questionable return. As aninvestor you would likely need to ask yourself where the company is expected togrow in the interim?
This article first appeared on GuruFocus.
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