Has Apple's Stock Peaked?

Last week, tech giant Apple (NASDAQ: AAPL) briefly became the world's most valuable company again. It's a title it has held in the past, but amid the excitement around artificial intelligence (AI) opportunities, Nvidia has often held that crown in recent years.

Apple reclaiming that title, albeit briefly, is still symbolic of just how hot it's been of late. Investors have gravitated toward its cautious AI strategy and reluctance to spend lavishly on investments and opportunities that may not pan out, viewing it as a safer tech stock than its peers.

But amid its rally over the past year, has Apple's stock become too rich? Is the stock too expensive to buy right now?

Image source: Getty Images.

Apple's stock looks more expensive than normal

While Apple's stock has been trading lower in recent days, its valuation remains fairly high. Investors who buy the stock today are valuing it at a price-to-earnings (P/E) multiple of 35 -- far higher than the S&P 500 average of 25. A premium may be justified for one of the world's top tech companies, especially given its dominance in the cellphone market. But is P/E multiple of 35 too high? The chart below shows what kind of earnings multiple Apple has averaged over the past decade.

AAPL PE Ratio data by YCharts

Historically, its P/E average is around 26, and that's with it trending higher in recent years. Prior to the pandemic, it was trading at a multiple closer to 20. It is a sign of the times, as investors are willing to pay significantly more, even for a business such as Apple, which hasn't been known for high growth in recent years.

The stock could be due for more of a decline

I don't think Apple is a stock that's worth its current valuation. It's down from its recent high, which may be a sign that many investors are recognizing it was overvalued and are securing large profits while they can.

The company did well in its most recent quarter, with its net sales rising by 16% to $109 billion for the period ending June 27. However, without a rosy guidance ahead and plenty of uncertainty around supply and higher memory costs, it has become increasingly difficult to justify the stock's high price tag.

While Apple is a top tech company to invest in for the long haul, its high valuation could make it vulnerable to further declines in the near future, and there are arguably better-priced growth stocks to consider today.

David Jagielski, CPA has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple and Nvidia. The Motley Fool has a disclosure policy.