Apple: Moonshots Fizzling (NASDAQ: AAPL) | Search for alpha

like Apple company (Nasdaq: AAPL) back to the natural valuation multiple, investors should be aware that the equation is still not in favor of outsized gains over the long term. The tech giant has it Recently it has had demand issues, finally showing up after two years of strong coronavirus boosts and major projects continuing to struggle. for me investment thesis Still bearish on Apple Inc stock. , with the dead money thesis now in full force.

More Moonshot delays

Much of the dead financial call was on Apple Inc. It is relying on new products to increase stock. The Apple Car and AR/VR headsets were the main drivers driving stocks above $160, and those products weren’t designed to provide much revenue for the tech giant. over the next few years.

The news surrounding AR/VR devices has helped the dead money call greatly. The long-awaited mixed reality device that costs upwards of $3,000 has yet to launch, and Apple Car continues to shrink it and push any delivery data.

latest news from bloomberg The full schedule for AR/VR hardware has been delayed further, with AR glasses being indefinitely delayed due to technical issues. The lower-end MR may not hit the market until 2025, which leaves a gaping hole from releasing a high-end MR this year until a second model hits the market two years later.

The problem for Apple is that the initial cost of the MR device, potentially dubbed “Reality Pro,” expected to be released this year, is likely to drive most people off the market. In fact, the tech giant doesn’t seem to have a competing product for Meta platforms (META) Pro device through 2025.

Apple currently has the 10 cameras, sensors, and multiple chips needed to build an MR device. The company seeks to use cheaper iPhone-related products and chips in the low-cost device to lower prices, but this product may not hit the market for a few years, after which Meta has released newer versions and established a solid roadmap in the VR sector.

The earning potential of the AR/VR hardware category over the next 2-3 years seems to be very limited. The Apple Car has already been anticipated as a 2026 product, with limited details providing confidence that the tech giant will have a product in this space anytime soon.

AR glasses are the most promising device in which Apple can replace the bulky iPhone with a device that provides a screen to replace most of the functions of a smartphone. The problem is that this machine doesn’t have specific plans anymore and even a limited group of employees work on the machine. The VR hardware is a far cry from the Meta products Oculus has been on the market since 2016 with the original Oculus Rift.

According to data from IDCThe AR/VR market has struggled in 2022, with declining sales due to Meta only releasing a $1,500 Pro model this year. The numbers don’t support much demand for an Apple product at twice the price of the Quest Pro, with unit shipments down 12.8% last year to 9.7 million units.

The definition of moonshot has changed over time, with Merriam-Webster now defining the original “long shot” as:

A project or project that aims to produce profound or outstanding results after one heavy, consistent, and usually rapid push.

AR/VR devices and the Apple Car definitely fall into the category of shooting capabilities at the moon. Apple expects to achieve profound results by introducing new categories.

Unfortunately, products of both categories continue to be pushed out. Even an Evercore ISI analyst expects the large-scale AR/VR offering to generate just $18 billion in sales and a nearly meaningless EPS of $0.19.

Augmented reality glasses have the potential to replace the iPhone over time, providing the product’s ability to move the needle for Apple. The tech giant is on its way to $400 billion in annual sales, so any product that falls below 5% of sales wouldn’t even qualify as a moonsault.

Back to trend

The chart below highlights Apple’s trading woes at more than 30 times forward earnings estimates in early 2022. The tech giant doesn’t have a history of growth that warrants a high multiple.

Outside of the huge covid sales increase in fiscal ’21, Apple has had at least 5 of the past 7 years with little growth. Current consensus estimates point to revenue growth of just 2.5% in FY23.

At the beginning of January, Apple reportedly cut orders for the MacBook, Apple Watch, and AirPod in a sign of the flip side of big coronavirus buildups in fiscal ’21. The unnamed Apple supplier notes that the problem is due in part to Less demand than expected.

The tech giant faced a tough end to 2022 with the iPhone 14 in short supply due to Foxconn facing the Covid lockdown in China. Apple has continued its production away from China, but the company is facing wrath from the communist government, which has undermined sales well in the country.

Apple Inc stock rose. Again to $135, which put the valuation at a stretch again considering all the production and demand issues along with both main shots faltering. While analyst earnings are currently rebounding in the coming year, Apple Inc.’s stock is still going strong. It trades at EPS targets for fiscal year 24 20 times, with limited growth expected over the two-year period.

away

The main bottom line for an investor is that Apple Inc. Big projects need to come to fruition or investors are left with more years of limited growth. Ongoing delays in the AR/VR category provide no confidence that the products will successfully boost physical revenue enough to warrant a higher share price.

Apple Inc. remains A sale until the valuation equation is changed by a drop in the share price, or the company successfully reaches a firing position.