Apple(NASDAQ: AAPL) is in the bottom 10% of S&P 500 stocks when measuring year-to-date performance. The stock trades down almost 22% at the time of this writing.
Here are three reasons why the sell-off in Apple has gone far enough, and why the beaten-down growth stock could be a great buy for the second half of 2025.
Image source: Getty Images.
1. Apple has new tools and design upgrades for its users
Apple generally puts out two major product and service announcements each year. The first, known as the Worldwide Developers Conference (WWDC), just concluded. The second is its new products unveiling, which typically happens in September.
WWDC 2025 was a bit of a mixed bag, as Apple failed to make a splash with its artificial intelligence (AI)-related announcements. But there were announcements about upgrades.
At WWDC 2024, Apple unveiled Apple Intelligence. At WWDC 2025, it announced new features across Apple products, allowing developers to access the company's on-device large language model (LLM). It also allows users to take what they see on their screen and leverage that visual across different applications. For example, users can engage with ChatGPT, Alphabet's Google, or shop on Etsy based on what they are viewing at a given moment. Apple Intelligence can also help translate languages through Messages, FaceTime, and on phone calls. And it can take a visual for an event and add it to the user's calendar, saving a manual entry step.
Apple also unveiled a software interface update called Liquid Glass and a new operating system for many of its products called iOS 26. The software is a major design update that will impact content across all of Apple's apps and devices.
Following the announcements, Apple's stock price ticked down slightly, possibly because the announcements were underwhelming compared to what competitors are doing or because folks were simply expecting more. As of Friday afternoon, Apple was down 3.8% compared to its closing price on June 6 before WWDC began.
2. Apple is doing a better job with AI than it gets credit for
There is no shortage of criticism that Apple is behind on AI and simply isn't innovating enough. But Apple is in a different position than other companies because it is mainly consumer-facing. Apple makes sophisticated and elegantly designed products that pair with a suite of services -- including Apple TV, Apple Music, Apple Pay, Apple Card, iCloud, and more. Apple wants to avoid releasing software updates that overwhelm factions of its user base, making AI updates that are difficult to navigate, or releasing a design feature that isn't received well.
There are valid reasons why Apple hasn't made a major design update in over a decade. Or why the company keeps the base prices on new products relatively consistent from year to year. It's because there is immense value in keeping users engaged across its ecosystem. If a user doesn't have an iPhone, the incentive to pay for Apple services or use other Apple products like Apple Watch or AirPods is reduced.
The golden opportunity for Apple is gradually releasing AI features and design updates that the vast majority of users like. If Apple can do that, then it will make its ecosystem even stickier and could even justify price increases.
Apple is vulnerable to tariffs, as it assembles most of its products in China. Apple could adjust its supply chain over time, but it's unlikely it would ever mass-produce products in the U.S., even if moderate tariffs were in place. So, in the meantime, Apple may have to absorb tariffs, which will reduce its margins. But if users like Apple's upgrades, they may be willing to pay a higher price for new products, which could offset some of the tariff impact.
In sum, Apple's goal shouldn't be to release the most technologically advanced features, but to blend AI with design and engagement. Investors should watch how users react to the latest Apple Intelligence updates. If received well, it could justify further improvements.
3. Apple's earnings growth could accelerate
Over the long term, earnings growth drives stock prices. A company can have snazzy headlines and product announcements, but at the end of the day, if updates don't translate to earnings growth, Wall Street won't be impressed.
The most valid reason not to buy Apple stock is its lackluster earnings growth. The COVID-19 pandemic pulled Apple's sales forward as consumers flocked to purchase discretionary products. Those outlier years make Apple's comps look a bit wonky, as the company's trailing-12-month sales are up just 3.3% in the last three years and diluted earnings per share (EPS) are up 5.9% compared to a 45.4% increase in the stock price. So from that perspective, Apple looks a bit overvalued.
But there are reasons to be optimistic about Apple's long-term earnings growth. A near-term driver could be the upgrade cycle, whereby users are expected to buy the latest Apple products because their devices will become out of date. A big chunk of this group likely bought devices during the pandemic and is due for new devices in the coming years, which could drive demand.
Another factor is Apple's relentless capital return program. Apple is so profitable and earns way more cash than it needs to fund its operations, research and development, and other long-term investments that it can afford to pass along many of those profits to shareholders through buybacks and dividends.
In May, Apple's board of directors approved a $100 billion stock buyback program and raised the dividend for the 16th consecutive year.
Buybacks have helped Apple grow EPS far faster than net income over the years -- making the stock a better value. Apple's dividend only yields 0.5%, but that's mainly because its buyback program is much larger than its dividend expense.
A balanced buy for long-term investors
With a price-to-earnings (P/E) ratio of 30.7, Apple isn't a great value at first glance. But given the current point in the upgrade cycle and potential pricing power from design improvements and AI features, Apple could undergo a considerable earnings expansion in the coming years. Plus, buybacks will help the company grow earnings even during periods of slower growth.
All told, I expect Apple to outperform the S&P 500 in the second half of 2025, but investors shouldn't buy a stock just to make a quick buck in a short period.
Rather, a better reason to buy and hold Apple over the long term is if you believe in the company's ability to remain an industry leader in phones and devices, continue to build its high-margin services segment, and approach AI in a way that keeps users engaged.
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Daniel Foelber has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Apple, and Etsy. The Motley Fool has a disclosure policy.
