Apple Inc. (AAPL): A Bear Case Theory 

We came across a bearish thesis on Apple Inc. on CompoundingLab’s Substack. In this article, we will summarize the bears’ thesis on AAPL. Apple Inc.’s share was trading at $256.44 as of January 28th. AAPL’s trailing and forward P/E were 34.62 and 31.15 respectively according to Yahoo Finance.

Apple Inc. (AAPL) is widely regarded as a flagship technology company, with a dominant position across smartphones, wearables, services, and its broader ecosystem. The company has consistently delivered solid operational performance, with EBITDA margins reflecting efficiency and free cash flow generation that has funded substantial share buybacks and strategic investments. Over the past decade, Apple has grown revenue at a median rate of 6%, driven by iPhone sales, expanding services, and the stickiness of its ecosystem, which together create a durable competitive moat.

However, a detailed DCF analysis suggests that the current market price may be significantly overstating the company’s growth potential. Key assumptions—including a five-year growth rate of 7%, long-term growth of 2.6%, a WACC of 8%, and an EV/EBITDA exit multiple of 20—indicate that shares are trading roughly 128% above intrinsic value.

This implies that investors may be pricing in aggressive growth that could be difficult to sustain given historical trends and the maturity of Apple’s core markets. While Apple’s brand strength, ecosystem, and cash flow generation remain compelling, the disconnect between valuation and achievable growth introduces material downside risk.

For investors, this suggests a cautious approach: while Apple’s businesses remain resilient and cash-generative, the current stock price offers limited margin of safety, making it a potentially overvalued investment at present. Long-term returns may be constrained unless growth accelerates beyond conservative projections, highlighting the importance of valuation discipline in exposure to even the most iconic technology companies.

Previously, we covered a bullish thesis on Apple Inc. (AAPL) by Kontra in October 2024, which highlighted the company’s sticky ecosystem, steady iPhone replacement cycles, strong services growth, and robust cash return strategy. AAPL’s stock price has appreciated by approximately 9.12% since our coverage due to continued operational strength and share buybacks. CompoundingLab shares a contrarian view emphasizing a more valuation-focused perspective, highlighting potential overpricing relative to intrinsic value.

Apple Inc. is on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 166 hedge fund portfolios held AAPL at the end of the third quarter which was 156 in the previous quarter. While we acknowledge the risk and potential of AAPL as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than AAPL and that has 10,000% upside potential, check out our report about this cheapest AI stock.

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Disclosure: None.