As of the June 26 close, Apple (NASDAQ: AAPL) is the worst-performing stock in 2025 among the vaunted Magnificent Seven. The formerly most valuable stock in the world has provided a total return of approximately -20%. Elon Musk’s Tesla (NASDAQ: TSLA) so far beats Apple out by a hair, down a little more than 19%.
Needless to say, it has been a very difficult year for the iPhone maker.
Trade wars have likely had the largest negative effect on Apple among the Mag 7 companies. Additionally, its rather underwhelming efforts to utilize AI haven’t impressed investors. Still, Apple has proven its doubters wrong for decades, and dismissing the company is the last thing investors should do. So, does Apple stock remain a strong long-term bet?
A Mid-Term Look Back at Apple: Lagging Sales Growth and Unimpressive Returns
Ultimately, the question around whether Apple can turn things around centers largely on how it can re-accelerate its revenue growth. Apple divides its revenue into two main groups: products and services. Over the last several years, Apple’s product revenue has been flat to slightly declining.
This segment includes iPhones, Macs, iPads, and wearables. The last 12 months' product revenues of $298 billion are essentially the same as the $297 billion generated in fiscal 2021.
The company has made progress in growing its margins, but the success still isn’t overly impressive. The company’s operating margin was around 29.8% in fiscal 2021. As of fiscal 2024, the figure improved to 31.5%. This margin expansion has been due to the company’s services segment, where all its growth is coming from.
The company’s services revenue of $102 billion in the last 12 months is up approximately 50% from fiscal 2021. Notably, the gross margin in this segment is approximately 75%, around double that of the products segment. The App Store, Apple Music, Apple TV+, and Apple Pay are all examples of the company’s services.
Overall, Apple’s total revenues for the last 12 months are up only around 9% compared to fiscal 2021.
Apple has increased its adjusted earnings per share (EPS) by around 20% over this period. The company has driven much of this by reducing its outstanding share count by around 9%, spending over $300 billion on buybacks.
Still, Apple stock has provided a total return of just 15% since the end of 2021, as of the June 26 close. That’s less than half the return of the S&P 500 Index over that period.
Apple's Growth Path: AI Is the Answer
So, in what ways does Apple have to re-accelerate its growth? Creating a new iPhone, Mac, or other device that has huge new technological advancements could do the trick. However, Apple does not seem to have anything on the horizon that would massively move the needle.
iPhones that are five years old still largely do everything that the new ones can.
That is especially true considering that no one has seen Apple Intelligence, the company’s set of AI features, as groundbreaking by any means. However, greatly enhancing its AI capabilities could not only drive growth in product sales but also create unexplored service sales avenues.
The company has market share dominance with the iPhone and Mac. Creating the best personal assistant that integrates seamlessly with these devices could make Apple products the preeminent way in which most people consume AI. However, the company needs to change something to actually make this happen.
Rumors have recently emerged that Apple may acquire the AI start-up Perplexity. Perplexity is one of the more well-known competing products to ChatGPT. Even so, this likely wouldn’t give the company what it needs to create a revolutionary AI-enabled product.
The company has announced that it plans to invest $500 billion over the next four years to support Apple Intelligence. This should greatly help enhance its capabilities.
Apple: The Mag 7 Giant That Still Has Time to Rake in Big AI Returns
Overall, Apple's fall behind in the AI race is no secret.
But its huge device customer base, which no one is likely to crack soon, gives it time to catch up. Meta Platform’s (NASDAQ: META) AI hardware is a threat, but it is hard to see anyone getting rid of their iPhone for a set of smart glasses in the near future.
Advancing in AI would open up a world of new possibilities for the firm. This makes Apple a company that doesn’t make sense to bet against mid-to-long term at this point. Making a big AI splash could turn things around.
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