Apple and Nvidia Stocks Trade at Similar Valuations. Only 1 Is Growing.

For the fiscal year ended in September, Apple revenue fell 3%, declining $9 billion from fiscal 2022. To put that in perspective, over the same four quarters, Microsoft expanded its top line by more than $15 billion. Apple reported full-year declines in all four of its major device categories—iPhones, Macs, iPads, and wearables. Only services revenue grew from the previous year.

For those counting on a rescue from the all-important holiday quarter, Apple isn’t sounding too upbeat there, either. On its earnings call Thursday, Apple said that results in the December quarter would be about flat with the year-ago period, a forecast that came as a disappointment to Wall Street, which had been projecting 5% revenue growth for the quarter.

“The December quarter typically sets the tone for the year,” Bernstein analyst Tony Sacconaghi wrote Friday. He now says Apple’s fiscal 2024 revenue could be flat, versus a consensus estimate for 6% growth.

To be clear, Apple has built a fantastic business. The company has more than one billion subscribers to its various services, ranging from music and streaming video to financial services and data storage. And it has an installed base of more than two billion hardware devices.

In the iPhone, Apple has created one of the most successful consumer electronics products ever, with sales in the latest year of more than $200 billion, nearly Microsoft’s total revenue. The company’s products are brilliantly engineered, and they engender fanatical customer loyalty. I am writing this column on a MacBook Air, with my iPhone 13 Pro Max sitting next to me and my Apple Watch on my wrist. Apple TV+ is my favorite streaming service, I use Apple Music (not Spotify), and I have thousands of photos stored in the company’s cloud. But none of that addresses the core question: Why can’t Apple grow?

Heading into the earnings report, there were worries about the iPhone business, and things could have been worse. For the quarter, iPhone revenue was up 3%, to $43.8 billion, in line with Street estimates. But other hardware categories sagged, with declines of 3% in the wearables segment, 10% for iPads, and a whopping 34% for Macs. According to Gartner, overall PC shipments were down only 9% in the same period, which suggests that the Mac isn’t only shrinking, it’s also losing considerable market share.

The sharp swoon in the Mac business might explain why Apple took the unusual step of holding a 30-minute evening product launch event this past Monday to unveil new MacBook Pro laptops and an updated iMac.

If you squint, you can find some things to like about Apple’s latest quarter. Gross margin hit a record 45.1%, and the midpoint of the company’s December guidance suggests a further uptick to 45.5%. The company’s China revenue was down 2% in the quarter, but Apple noted that adjusted for currency, the total was actually up 4%, with the iPhone setting a September-quarter record for sales in mainland China. That’s good news, given recent concerns about the competitive threat posed by Huawei’s Mate 60 Pro smartphone. Meanwhile, the company maintains its shareholder-friendly capital returns, buying back $15.5 billion of common stock in the quarter.

Apple’s December-quarter guidance has various moving parts, and there are a few caveats that could dampen the worries. For starters, Apple expects revenue growth to be reduced by about one percentage point due to currency-exchange headwinds. Chief Financial Officer Luca Maestri said on the call that this year’s December quarter will have 13 weeks, compared with 14 in 2022. That extra week boosted revenue by about seven percentage points last year. Now the calendar is working against Apple. Maestri still expects iPhone revenue in the quarter to be above the year-ago period, and he expects Mac sales to “significantly accelerate” from the September quarter.

All the numbers focus may overlook the biggest worry about Apple, though. The company still isn’t spending any time talking about this year’s most important topic with investors, the emergence of generative-AI software. Cook briefly touched on AI during the call, but only because an analyst asked.

“In terms of generative AI, obviously, we have work going on,” Cook said. “I’m not going to get into details about what it is because, as you know, we really don’t do that. But you can bet that we’re investing. We’re investing quite a bit….And you will see product advancements over time where those technologies are at the heart of them.”

OK, so maybe AI will be the thing that gets Apple’s top-line rolling again. Maybe it will be an iPhone sales surprise. Maybe it will be something no one is anticipating. But if Apple remains in no-growth mode for much longer, you have to wonder if the stock can sustain its lofty forward multiple.

At 27 times projected earnings, Apple trades roughly in line with Nvidia. One company isn’t growing. One company is on fire. Investors can do the math.

Write to Eric J. Savitz at [email protected]