Apple (AAPL.US) has been one of the few underperforming U.S. mega-cap tech stocks in 2025. Its year-to-date gain of 8.5% significantly lags behind the S&P 500 index. Financial analyst A.J. Button has articulated his perspective, attributing Apple's lackluster 2025 performance to several key factors. Firstly, the company has shown minimal revenue growth, accompanied by negative growth in its free cash flow. Secondly, its artificial intelligence (AI) strategy is perceived as inadequate compared to peers, with Apple Intelligence receiving particularly tepid reviews from critics. Thirdly, some recent product launches, such as the Apple Vision Pro, are widely viewed as failures. Button refrains from judging whether these initiatives truly failed, emphasizing that the critical point is the market's prevailing perception. These facts collectively explain Apple's disappointing performance this year and may also signal challenges for its future.
While Apple possesses a powerful brand and a fiercely loyal customer base, its sheer size has become a formidable obstacle, making it incredibly difficult to identify meaningful new investment opportunities. For a small startup with $10 million in sales last year, a product launch generating $1 billion in annual recurring revenue (ARR) would represent a staggering 10,000% year-over-year growth. In stark contrast, for a behemoth like Apple with annual revenue already at $416 billion, that same $1 billion product launch equates to a mere 0.2% growth. This perfectly illustrates the meaning behind Warren Buffett's adage that "size is the anchor of performance": the larger a company becomes, the harder it is to achieve above-average returns on investment. This is the precise predicament Apple faces today.
The company's revenue and profits are so immense that discovering new investment opportunities—be it products or services—capable of materially altering its trajectory is exceptionally challenging. Its most recent major attempt, the Apple Vision Pro, has clearly stumbled. Another ambitious endeavor, the Apple Car, was shelved after billions were poured into research and development. Consequently, Apple is struggling to find genuinely game-changing investment opportunities. This is not to say it's entirely impossible; for instance, a substantial investment in NVIDIA (NVDA.US) stock three years ago could have been transformative. However, Apple is not an investment management firm, and its leadership may not possess expertise in stock selection. Therefore, Apple's potential "investment" opportunities essentially lie in R&D that yields new products and services, yet the company appears hard-pressed to find new opportunities substantial enough to drive significant growth.
Previously, Button had assigned a "Neutral" rating to the stock, citing threats from potential tariffs on China under the Trump administration. Since then, Apple has navigated the year relatively unscathed, as China and the U.S. reached partial exemptions on tariffs for electronics. This has resulted in performance exceeding his initial expectations for the year. However, Apple's current stock valuation implies growth expectations, despite the company no longer growing rapidly. Based on this and other factors, Button maintains his "Neutral" rating on Apple.
First, Apple's competitive position should be examined. This area is actually a positive; Apple boasts a strong competitive moat derived from its brand strength, integrated ecosystem, and loyal fanbase. The power of the Apple brand requires little elaboration; it has repeatedly been ranked the world's most valuable brand, granting the company significant pricing power. Although the premium for Apple's flagship products over competitors is no longer as consistent as it was in the 2000s, its charges for cloud storage and hardware upgrades remain substantially above the industry average. This ability is a direct result of its brand strength.
Second is Apple's integrated ecosystem. Apple products are renowned for their seamless integration with one another, typically sharing the same software and similar hardware. This allows users to, for example, copy and paste seamlessly between an iPhone and an iPad. This level of ecosystem integration is rare among competitors, solidifying Apple as the prime choice for individuals seeking a unified experience across all their devices. Third, and finally, Apple commands a deeply loyal fanbase, particularly in countries like the U.S. and Japan. Most obviously, these fans contribute to the brand strength mentioned earlier. Less obviously, they actively promote the company's products by uploading reviews to YouTube and posting comments on Facebook. Thus, Apple's loyal fanbase also helps attract new members, creating an enviable marketing advantage.
Why is the analyst not bullish at this price? The analyst believes Apple is a great company. However, the "Neutral" rating is tied to the fact that it trades at growth stock valuation multiples while facing significant disadvantages for sustained growth. As shown in the chart below, the stock trades at a price-to-earnings (P/E) ratio of 36, a price-to-sales (P/S) ratio of 9.8, and a staggering price-to-book (P/B) ratio of 55. An investor today would need the equivalent of 36 years of earnings to recoup their investment, without even considering opportunity cost. As the chart illustrates, Apple's valuation multiples appear not only high but also carry an extreme premium compared to peer companies. Apple stock currently seems overvalued.
Indeed, if Apple stock cannot sustain growth, it is overvalued at its current price. A P/E ratio of 36 equates to an earnings yield of just 2.77%. Meanwhile, the current yield on the 10-year Treasury note is 4.14%. Therefore, a non-growing Apple stock cannot outperform the opportunity cost of "risk-free" capital. Will Apple truly stop growing? It is genuinely difficult to identify sources for substantial revenue growth. The company's two most recent major projects—the car and the Vision Pro—appear to have faltered. The company can always implement minor price increases, but this is not the kind of growth that delivers a 20% compound annual growth rate, which Apple achieved in the 2000s. Therefore, a conservative estimate suggests Apple's long-term revenue growth is unlikely to exceed the level seen over the past twelve months (TTM) of 6.4%.
While the company's earnings growth may surpass this figure in the short term, it is unlikely to significantly exceed it over the long haul, as earnings are largely a function of revenue and costs. Using 6.4% as a long-term forward growth rate, Apple is not an attractive investment at a P/E of 36. The yield at that level is a mere 2.77%, which is lower than the yield available from Treasury bonds.
The final conclusion on Apple at the end of 2025 is this: it is a great company, but it trades at a less-than-great price. The company should easily maintain its customer base and even achieve modest percentage growth in the future. However, it will struggle to achieve "explosive" growth because, for a $3 trillion giant, there are very few opportunities left that can truly move the needle. In light of this, the company's P/E multiple of 36 appears slightly elevated. Therefore, a "Neutral" rating on Apple is maintained.
