Apple’s AI Rally Puts Valuation at Risk of Outpacing Reality

Apple Inc.’s record-breaking rally has invited skepticism as to whether its artificial intelligence strategy justifies the stock’s valuation.

The shares surged to a fresh all-time high last week, briefly taking Apple back above Microsoft Corp. as the world’s most valuable company after it unveiled new AI features that investors hope will spur a massive upgrade cycle among users.

That’s pushed the valuation to around 30 times forward earnings, a level that the stock has struggled to sustain in the past. While Apple’s plans were cheered by investors seeking faster revenue growth and higher returns on capital at the firm, questions remain as to when exactly that boost will arrive.

“I hope the market is right, but so far we haven’t seen enough to be sure,” said David Daglio, who manages $7.9 billion as chief investment officer at TwinFocus Capital Partners LLC. “I wouldn’t put new money to work here. The risk-reward is negative at best.”

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The timing of when Apple’s AI strategy will deliver a meaningful boost to revenue is key. The rollout of new AI offerings may be slower than investors want, stretching into 2025. The stock fell 2% Thursday, the most in about two months.