Apple (AAPL) stock price will be in the spotlight on Monday as the company delivers its most important event of the year. The stock has retreated by over 5% from its highest level this month and by almost 7% from the year-to-date high.
Apple’s iPhone 16 launch event
The main catalyst for the Apple stock price will be its upcoming iPhone 16 launch event on Monday. This will be an important event as it will let the company showcase its important products and upgrades.
The iPhone 16 will be the next big thing in the event. However, as most media companies have illustrated, the new iPhones will not be dramatically different from the iPhone 15 series.
According to Bloomberg, the company will introduce iPhone 16, 16 Plus, 16 Pro, and 16 Pro Max. The first two iPhones will have no major changes, except the faster processor and an increase in storage from 8 gigabytes, up from 6. They will also get the action button that is currently in pro phones.
The pro versions will be similar to the previous models, with the only difference being the size. iPhone pro’s screen will increase from 6.3 inches from 6.1 inches while Pro Max will increase from 6.7 inches to 6.9 inches.
These iPhones will also have more color choices, have slimmer bezels, a faster processor, and more artificial intelligence features. They will also have more camera improvements.
Apple will also launch new AirPods, some which will have additional health features, including a replacement of hearing aids. It will also upgrade its Apple Watch models for the first time in two years.
Additionally, Apple will likely introduce new M4 chips-supported MacBook lineup. M4 is expected to be more powerful than its current lineup.
Apple faces big challenges
Apple’s iPhone 16 event will demonstrate the challenges that the company is facing. Most notably, the company is struggling to demonstrate that there is a bigger room to improve its iPhone product.
In the past, iPhone upgrades were more important and customers often dumped their older phones for the new ones. A good example of this was in 2017 when Apple stopped shipping iPhones with a physical home button.
The upcoming iPhones will not have ground-breaking features. For one, while Apple will introduce new AI features, the reality is that anyone who needs AI on the iPhone has access to it right now.
Apple has partnered with OpenAI, the creator of ChatGPT for its AI ambitions and is said to be investing in the company at a $100 billion valuation.
The iPhone is Apple’s biggest seller and its growth has been slowing for a long time. In its most recent results, Apple said that its iPhone’s revenue came in at $32.29 billion, down from $39.66 billion in the same period in 2023. In the first half of the year, iPhone sales dropped from $156 billion to $154 billion.
To a large extent, the iPhone is a victim of its own success, which explains why people stay with their devices for a long period. On average, people stay with their iPhones for between 3 to 4 years.
Apple’s next big challenge is the iPad, which is a big revenue source. In the last quarter, its iPad sales rose to over $7.1 billion. They rose to over $19.7 billion in the first half of the year. The challenge, however, is that the iPad’s future is uncertain since iPhones can do the same work.
Released in March, iPad’s sixth generation is quite similar to the other models, meaning that many users don’t have an interest to upgrade.
Apple’s key focus now is in its services segment, which is holding strong even as its challenges remain. Its services revenue rose from $81.7 billion in Q2’23 to over $85.7 billion in the last quarter. It jumped from $293 billion to over $296 billion in the first half of the year.
Apple Services is made up of key services like Apple Pay, Arcade, Music, News, and App Store. Al these are high-margin businesses.
Apple stock and valuation
Therefore, Apple’s key challenge is how to justify its $3.4 trillion valuation now that its revenue is no longer growing as it used to before. Apple has a forward GAAP price-to-earnings ratio of 33.63 and forward EV to sales of 8.47. These valuation multiples likely explain why Warren Buffett has started to exit his stake in the company.
Technically, there are signs that Apple stock has formed a double-top chart pattern whose neckline is at $195.80. In price action analysis, this is one of the most popular bearish chart patterns in the market.
Therefore, I suspect that Apple will continue facing turbulence in the coming months. Just this week, the EU will rule whether Apple must pay $14 billion in taxes, owing to its preferential treatment in Ireland. More upside will only happen if the stock rises above the key resistance point at $240.
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