The Apple stock price (NASDAQ:AAPL) recently closed near an all-time high, reaching $233, just shy of the $234.55 peak it hit earlier this year in July. Apple’s stock has shown a 21% increase year-to-date (YTD), outperforming the broader tech sector and the Zacks Computer-Micro Computers industry, which grew by 19%.

Demand for AI-Powered Devices Drives Apple Stock Price

The recent surge in the Apple stock price is driven by strong demand for its new AI-powered product lineup. The iPhone 16 series, along with the Apple Watch Series 10 and updated AirPods, has been a major catalyst for growth. The integration of Apple Intelligence across devices like the iPhone, iPad, and Mac has created a buzz, with this advanced AI technology aiming to enhance user experience and device capabilities.

Apple Intelligence, first unveiled at the annual developer conference, promises to revolutionize the Apple ecosystem. With seamless integration into iOS 18.1, iPadOS 18.1, and macOS Sequoia 15.1, it enhances features such as Siri’s capabilities, rewriting and proofreading tools, and context-based voice and text functionalities. These updates, set to launch this month, are part of Apple’s continued effort to stay competitive in the AI space.

Apple Intelligence and Competitive Landscape

Apple’s venture into AI is seen as a strategic move to catch up with tech giants such as Alphabet (NASDAQ:GOOGL), Microsoft (NASDAQ:MSFT), and Amazon (NASDAQ:AMZN), which are all investing heavily in artificial intelligence. With Apple Intelligence’s promise of leveraging generative AI models to enhance language and image understanding, the company aims to offer better user experiences while maintaining privacy standards.

Initially available in U.S. English, Apple Intelligence is set to expand to localized English in regions such as Australia, Canada, and the UK by December, with additional language support coming next year. This AI upgrade is expected to integrate directly with ChatGPT, allowing iOS, iPadOS, and macOS users to access advanced AI capabilities within their devices.

Services Segment: A Key Growth Driver

While the iPhone remains Apple’s flagship product, the Services segment is becoming an increasingly significant revenue driver for the company. In the fiscal third quarter, Services revenues grew by 14.1% year-over-year to reach $24.21 billion, accounting for 28.2% of the company’s total sales. The segment’s growth is fueled by rising demand for services like Apple TV+, Apple Pay, and Apple Music.

The expansion of Apple Pay to new markets, including Japan, Canada, Italy, and Germany, has further boosted the Services business. Additionally, updates to Apple Maps, collaborative features in Apple Music, and a refreshed Apple Fitness+ are expected to contribute to the segment’s growth.

For the September-ending quarter, Apple anticipates that revenues will grow at a similar rate as the previous quarter. The Services division is expected to show double-digit growth, with fourth-quarter revenues projected at around $25.73 billion, indicating a 15.3% year-over-year increase.

Valuation Concerns: Is Apple Stock Overvalued?

Although the Apple stock price is experiencing an upward trend, its valuation has raised some concerns. The stock currently trades at a forward 12-month Price-to-Earnings (P/E) ratio of 34.75X, which is significantly higher than the sector median of 27.96X and the industry average of 26.68X. This high P/E ratio reflects a stretched valuation, suggesting that the stock may be priced at a premium.

Despite the valuation concerns, AAPL shares remain above their 50-day and 200-day simple moving averages (SMA), indicating continued bullish momentum and strong investor interest.

Apple Stock Price: To Buy or Not to Buy?

Apple’s investment in AI and the growing success of its Services segment make it an attractive choice for growth-focused investors. The expanding user base, now exceeding 2 billion active devices, and strong brand loyalty contribute to Apple’s favorable investment profile. However, challenges such as increased competition in China and potential market saturation should be taken into account. Furthermore, some analysts believe the current Apple stock price may have already factored in the benefits of the AI initiatives, suggesting that future price appreciation could be limited.

While the AI push and Services growth are compelling, investors should carefully consider Apple’s valuation and its competitive landscape before making a decision. For now, the Apple stock price is backed by solid fundamentals but requires cautious analysis for prospective buyers.

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