The company’s high R&D expenses could suggest it has something lucrative on the horizon.
Apple (AAPL -0.34%) had a slow start to the year, with its shares down 12% at the beginning of May. Dwindling product sales, poor market conditions, and an uncertain position in the budding artificial intelligence (AI) market caused investors to pull back.
However, the tech giant has turned things around since then, with its stock soaring 34% since May 1. Apple won back Wall Street by beating expectations in its third quarter of 2024 and with announcements hinting at an exciting future in AI. In Q3 2024 (ended June 29), the company’s revenue increased 5% year over year, beating analysts’ forecasts by $1.4 billion. The quarter profited from a 24% spike in iPad sales and a 14% increase in services revenue.
Regarding AI, Apple is gearing up to make a massive push into the industry with the release of its iPhone 16 in September and the launch of Apple Intelligence — a generative overhaul of its operating systems.
Apple’s stock has risen more than 177,000% since it went public in 1980, benefiting from the success of market-shifting products like the first iPhone. The company’s meteoric rise over the years might have some analysts questioning whether its stock can have much more to offer. However, Apple is entering a new chapter of its history with AI and could enjoy major gains as its technology develops.
So, here’s why Apple could help you retire a millionaire with the right investment.
Apple could be gearing up for a lucrative shift in its product lineup
In late August, Apple revealed the date for its highly anticipated iPhone keynote. The event will take place on Sept. 9, announced with the tag line “It’s Glowtime” — likely a reference to its AI theme.
The company has ramped up its expansion into AI this year, announcing Apple Intelligence in June and now getting ready to release its iPhone 16. The new smartphone will be Apple’s first designed with AI in mind, and the company has invested billions to get there. The tech giant’s research and development (R&D) hit $8 billion in 2024, up 10% from last year.
Data by YCharts
This chart shows Apple spent nearly 10% of its total sales last year on R&D expenses, hitting a peak not seen for 20 years. In fact, the last time its R&D was this high, Apple was gearing up to launch the first iPhone and was revolutionizing the music business with the iPod. And its stock has since climbed 60,000%.
While it could be concerning for investors to see the company spend so much on AI, it also raises the question: What does Apple have up its sleeve? The tech giant isn’t always the first to move toward an industry. It has a reputation for taking a gradual approach to a new market, then showing up and stealing the show by quickly rising to dominance.
Products like smartphones, tablets, headphones, and smartwatches were all led by different companies before Apple landed on the scene. Meanwhile, market share in each of these industries quickly went to Apple once products like the iPhone, iPad, AirPods, and Apple Watch launched.
Apple’s free cash flow reached $104 billion in 2024, indicating it has the funds to keep investing in AI and catch up to its rivals. As a result, now could be an excellent time to invest before its stock soars over the next decade.
Multiple ways to monetize its AI efforts
Companies like Microsoft, Amazon, and Alphabet are mainly focused on the business side of AI, investing heavily in their respective cloud platforms. However, Apple has a unique opportunity to dominate the consumer sector. The popularity of its various products and the potential to add paid-for AI services to its library of digital subscription-based platforms could help it carve out a lucrative role in the industry.
Data by YCharts
Over the last five years, services revenue growth has massively outperformed all of Apple’s other segments (as seen in the chart above). Services are on a trajectory to surpass the iPhone in total revenue to become the company’s highest-earning business; an AI revamp of its products could encourage millions of product upgrades. Meanwhile, new generative services could help Apple earn money from those products for years.
Apple’s earnings are estimated to hit just over $8 per share by fiscal 2026. Multiplying that figure by its forward price-to-earnings (P/E) ratio of 34 yields a share price of $285, projecting stock growth of 25% over the next two fiscal years. Consequently, holding its shares over a decade or two could help a sizable investment cross that million-dollar mark by retirement.
Apple has significant potential and is a compelling buy for long-term-minded investors.
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Dani Cook has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, and Microsoft. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
