Since August, Apple (NASDAQ:AAPL) shares enjoyed an undisturbed uptrend, mirroring the performance of the S&P 500 (SPY). But at a forward P/E below 20 times, the stock still trails that of Microsoft (NASDAQ:MSFT) valuations. MSFT stock as a P/E of 26 times. What is holding back AAPL stock and what happens next after Apple shares already rewarded its investors handsomely?
Apple stopped disclosing iPhone unit sales last year, a move that at first hurt the stock. In the holiday quarter, chances are high that consumers caved and upgraded to the latest iPhone 11. Markets are unwilling to value Microsoft and Apple stock in the same way for one good reason.
iPhone sales are still a big part of Apple’s results. Regardless of the innovation introduced, sales will eventually slow once the upgrade refresh ends.
Microsoft gets to collect growing cloud software revenue every quarter. Its customers cannot do without Office 365 or Azure.
Apple’s growing iOS user base will push software and subscription revenue higher. The Apple TV+, Arcade, and continued strength in App store sales will lift its profits.
Takeaway
It is impossible to predict where Apple stock ends up in the short-term just as we do not know if or when the S&P 500 will correct. Investors who missed out on the AAPL stock run-up should wait for a pullback before starting a position.
