Apple stock could be due for a rerating when the consumer electronics giant comes out with its rumored AI-enabled iPhone this fall, a Wall Street analyst says.
Hedge fund investors are starting to warm to Apple stock, despite the company's deteriorating fundamentals near term, JPMorgan analyst Samik Chatterjee said in a client note Thursday.
The recent decline in Apple shares is creating a more attractive valuation ahead of what could be a major upgrade cycle for the iPhone, Chatterjee said.
"The increasing appetite from investors has largely been driven by interest in participating in the cyclical upsides associated with the AI on-device led upgrade cycle, with investors taking the cue from the 5G-led upgrade cycle," he said.
The iPhone 16, due out this fall, is likely to have AI features to attract buyers, Chatterjee said. That selling point could be similar to the move to 5G wireless networks, which started with the iPhone 12 in late 2020.
Apple Stock Price Target Lowered
Year to date, Apple stock has fallen 9.1%. The company is facing weakened hardware demand and slowing services growth, Chatterjee said.
Chatterjee maintained his overweight rating on Apple stock but trimmed his price target to 210 from 215.
On the stock market today, Apple stock rose 4.3% to close at 175.04.
A rerating of Apple stock probably will come well ahead of the actual AI iPhone launch, he said.
Chatterjee believes the major upgrade cycle for iPhones actually will come with the iPhone 17 series in late 2025. By then, there will be broader use cases for on-device AI, he said.
Gross Profit Margins Underappreciated
Elsewhere on Wall Street, BofA Securities analyst Wamsi Mohan reiterated his buy rating on Apple stock with a price target of 225.
"In our opinion, the Street continues to underestimate the long-term gross margin potential for Apple across both products and services," Mohan said in a client note. "We see gross margins at Apple headed significantly higher, driven by increased mix of services within the overall portfolio."
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