Apple Inc. (AAPL.US) stock price reaches a new high, why is the market worried about its "lack of momentum"?

Despite underperforming its "Tech Seven Giants" peers and the broader market in the first half of 2025, Apple Inc. (AAPL.US) rebounded strongly in the second half with a 35% increase, achieving a net gain of over 11% for the year and outperforming the S&P 500 index and many other large tech stocks. This reversal was driven by steady acceleration in core iPhone and Mac sales, as well as stable profit margin expansion from a favorable product mix, partially offsetting the growth in AI research and development operating expenses. However, with the stock reaching new highs in the second half of the year, there is little room for error in the coming year. While Apple Inc. holds potential catalysts such as more personalized Siri and a foldable iPhone 18, these are seen more as necessary measures to maintain competitiveness rather than disruptive drivers of significant growth. Additionally, the current valuation premium does not fully reflect a range of imminent challenges. This article mainly analyzes three major direct risks that have not received sufficient attention. Challenge One: Front-loaded iPhone upgrade demand Apple Inc. set an iPhone sales record in the September quarter, primarily driven by strong demand for the iPhone 16/17 series, with growth limited by supply shortages. Management indicated that the guidance for the December quarter includes a significant backlog of iPhone 17 orders, suggesting accelerated growth. However, looking ahead to the 2026 fiscal year, the outlook for iPhone demand is concerning. While management downplayed the role of tariffs in driving early demand release, major U.S. carriers observe that device upgrade activity has shifted earlier in the year since the announcement of tariffs in April. The redesigned iPhone 17 has sparked consumer interest, but this demand drive may not be sustainable. The upcoming foldable iPhone 18 is expected to struggle as a strong growth engine. Initial supply will be severely limited, and the foldable screen form factor has yet to gain mainstream market favor. More importantly, the massive upgrade cycle from the iPhone 12 era, which was expected to be driven by AI functionality, saw lackluster performance in early 2025 due to repeated delays in Apple Inc.'s AI features. Subsequently, tariff concerns stimulated demand for the iPhone 16 in the second half of 2025. This means that the demand released early due to tariffs and iPhone 17 design innovation may present Apple Inc. with a challenging comparison base in the 2026 fiscal year. Coupled with the weakening effect of average selling price increase due to changes in product mix, the risk of growth slowdown is heightened. Challenge Two: Increasing cost pressures In the 2025 fiscal year, with a favorable product mix, Apple Inc. achieved profit growth faster than revenue growth. Management expects this trend to continue in the short term. However, there is limited room for further profit margin expansion in the future, and it is difficult to fully offset the deteriorating cost structure caused by multiple factors. Tariff risk: While tariff-related costs are currently manageable through proactive supply chain management and trade agreement relief, the long-term risks have not dissipated. Apple Inc.'s efforts to diversify its supply chain are ongoing, but uncertainties in U.S.-China trade relations, as well as the tariff incentives linked to its production in India, introduce variables that affect long-term costs. Rising material costs: To comply with the "Made in America" trend, Apple Inc. is increasing the production of critical components in the U.S. (such as Corning Inc. glass and Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR local chips), which raises costs. Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR has warned that its U.S. plants will weigh on profit margins. Additionally, the industry-wide increase in raw material prices, especially memory, poses significant pressure. The price of LPDDR5X memory used in iPhones has more than doubled over the past year. While Apple Inc. has some advantage in scale, it is not immune to market price fluctuations. Other pressures: Although the higher-profit services sector continues to achieve higher profit margins, its normalization of low to mid-teens growth rates is unlikely to be sufficient to offset the product-side pressures discussed in the analysis. Apple Inc.'s moderate overall profit margin expansion in recent quarters has proven this, as service growth and its share of total revenue are stabilizing. As Apple Inc. is unlikely to significantly raise its product prices, the means to maintain future profit margins are limited. The recent succession of top talent departures further exacerbates this issue. Recent notable departures include Apple Inc.'s Senior Vice President responsible for machine learning and AI strategy, John Giannandrea, User Interface Design Director, Alan Dye, and Chief Scientist of the AI Model Team, Ruoming Pang. As Apple Inc. continues its AI transformation, it seeks to retain and acquire key talent, and these departures collectively increase the risk of higher personnel costs. This is expected to further amplify the pressure from the recent acceleration in AI research and development expenses, which has led to a rising trend in operating expenses, limiting improvements in future operating leverage. Challenge Three: Potential impact of market 'great rotation' In addition to fundamental headwinds, a shift in market style poses a threat to the sustainability of Apple Inc.'s high valuation. The recent market rally has been primarily driven by non-tech sectors such as healthcare, utilities, industrials, and energy that have lagged in performance over the past two years. The market expects the continued easing cycle to stimulate economic growth, giving these sectors a broad tailwind. This "great rotation" may not only suppress the upside potential of the entire tech sector next year but also reduce market preference for traditional 'cash cow' safe-haven assets like Apple Inc. Therefore, the adjustment of valuation premiums faced by large tech stocks may expose Apple Inc. to the risk of short-term multiple compression. Conclusion: Limited room for valuation to climb further, risks accumulate The recent historic highs in Apple Inc.'s stock price over the past six months reflect the market's confidence in its short-term execution and profit stability, aided by a favorable product mix, strong momentum in the iPhone, and cost control. However, looking ahead, there is limited substantive room for its valuation to rise from current levels. Early iPhone demand, high average selling prices, and other short-term positives are expected to fade in the 2026 fiscal year. The company will also face an increasingly complex cost environment, including macroeconomic uncertainties across the industry, rising material costs, and its specific rising costs in personnel and AI research and development. Coupled with the new trend in market funds rotating away from high-valuation tech stocks, the market's cautious attitude towards the persistence of Apple Inc.'s stock price near its current historic highs indicates that it has not fully absorbed the multiple risks of valuation compression that may arise in the coming year.