Apple AAPL shares have declined 21.3% year to date (YTD) underperforming the Zacks Computer & Technology sector’s decline of 17.1%. The stock has suffered from U.S. President Donald Trump’s decision to levy tariffs on trade partners, including China, Mexico and Canada. Post the April 2 Liberation Day announcement, Apple shares had fallen 11.2% till April 9 when the 90-day pause was announced. Since then, Apple shares have recovered 3.4% to date.

China is an important market for Apple as the iPhone maker’s manufacturing is primarily concentrated in the country. Higher tariffs negatively impact Apple’s China supply chain. The Trump administration’s decision to exempt electronic devices like smartphones and computers from reciprocal tariffs provided some relief to Apple.  

Apple has also been suffering from sluggish demand for the iPhone in China amid increasing competition from the likes of Huawei and Xiaomi, as well as the lack of Apple Intelligence. Greater China sales decreased 11.1% year over year in the first quarter of fiscal 2025.

Apple Stock YTD Performance

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Can Strong Services Boost Apple’s Prospects?

Although Apple’s business primarily revolves around its flagship iPhone, the Services portfolio has emerged as the company’s strong growth driver. In the fiscal first quarter, Services revenues grew 14% year over year, and Apple expects the March-end quarter’s (second-quarter fiscal 2025) revenues to increase by low double digits on a year-over-year basis. 

Apple now has more than 1 billion paid subscribers across its Services portfolio, more than double what it had four years ago. The expanding content portfolio of Apple TV+, Apple Music and Apple Arcade, as well as the growing user base of Apple Pay, has helped drive subscriber growth.

However, Apple TV+ has been suffering from a lack of content compared to Netflix NFLX, Amazon AMZN and Disney DIS. Severance, along with Ted Lasso, Slow Horses and Silo, are a few of the Apple TV+ shows that have gained fame in recent years. The number is quite small compared with content offerings from bigger rivals, including Netflix, Amazon and Disney. Apple TV+’s low popularity is hurting profitability, with the service losing more than $1 billion per The Information, which also claimed that the platform had roughly 45 million subscribers in 2024.

Per the latest data from JustWatch cited by 9TO5Mac, Apple TV+’s market share in the United States has increased from 7% in the fourth quarter of 2024 to 8% in the first quarter of 2025. Amazon Prime Video continued to lead with 21% market share, trailed by Netflix at 20%, Max at 13%, and Disney+ at 12%.

Apple Intelligence Expansion to Boost iPhone Sales Growth

Although iPhone sales decreased 0.8% year over year to $69.14 billion in the first quarter of fiscal 2025, Apple saw better iPhone 16 sales in regions where Apple Intelligence was available. Apple launched the first set of Apple Intelligence features in U.S. English for iPhone, iPad and Mac, and introduced more features while expanding to more countries in December 2024. 

Apple expanded availability of Apple Intelligence with iOS 18.4, iPadOS 18.4, and macOS Sequoia 15.4 updates in new languages, including French, German, Italian, Portuguese (Brazil), Spanish, Japanese, Korean, and Chinese (simplified) — as well as localized English for Singapore and India — and are accessible in nearly all regions around the world.

Apple iPhone and iPad users in the European Union can now access Apple Intelligence features. Apple Vision Pro now features Apple Intelligence in U.S. English.

AAPL Estimates Show Downward Trend

The Zacks Consensus Estimate for Apple’s fiscal 2025 earnings has declined 1.1% to $7.18 per share over the past 30 days, indicating 6.37% growth from the figure reported in fiscal 2024.
 

Apple’s earnings beat the Zacks Consensus Estimate in all the trailing four quarters, the average earnings surprise being 4.39%. (Find the latest EPS estimates and surprises on Zacks Earnings Calendar.)

Apple Stock Overvalued

The AAPL stock is not so cheap, as the Value Score of D suggests a stretched valuation at this moment.

Apple is trading at a premium with a forward 12-month P/E of 27.85X compared with the sector’s 23.92X, reflecting a stretched valuation.

Price/Earnings Ratio (Forward 12 Months)

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AAPL shares are now trading below the 50-day and 200-day moving averages, indicating a bearish trend.

Apple Trades Below 50-day & 200-day SMAs

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Conclusion

Although the Services business has emerged as AAPL’s new cash cow, we believe Apple Intelligence’s underwhelming performance is a headwind for its product business (iPhone, iPad and Mac). Hence, we believe that Apple’s near-term growth prospects do not justify a premium valuation.

AAPL currently has a Zacks Rank #3 (Hold), suggesting that it may be wise to wait for a more favorable entry point in the stock. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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