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Artificial intelligence (AI) has fueled the meteoric rise of several tech giants over the past year, and Nvidia Corporation (NVDA) stands out as one of the industry leaders. The chip designer's explosive growth, driven by soaring demand for its AI-essential GPUs from major tech companies, has captivated the entire market and solidified Nvidia's position as a dominant force in the AI revolution.
As more and more companies rushed to harness the transformative capabilities of AI, tech giant Apple Inc. (AAPL) is also gearing up to make its mark in the AI space. Though it's a relative latecomer to the AI scene, Apple’s ambitious plan to introduce AI-powered features in the upcoming iPhone 16 could be a game-changer, positioning the tech giant to make a bold entrance and disrupt the consumer AI space.
After unveiling its much-anticipated AI strategy at the June Worldwide Developers Conference (WWDC) event, Apple has reignited investor enthusiasm and bolstered Wall Street's confidence in its future prospects. And with AI darling Nvidia now facing intense skepticism over its latest earnings release, all eyes are on Apple's iPhone 16 launch at the highly anticipated “It’s Glowtime” event on Sep. 9.
But will the iPhone 16’s AI-driven innovations be enough to challenge Nvidia’s AI dominance? Let’s take a closer look to find out.
About Apple Stock
Founded in 1976, Cupertino-based tech giant Apple Inc. (AAPL) is the unrivaled titan of consumer tech innovation. With iconic products like the iPhone, iPad, Mac, AirPods, Apple Watch, and Apple Vision Pro, this “Magnificent Seven” company has continually set the gold standard for blending sleek design with flawless functionality. Boasting a staggering market cap of roughly $3.4 trillion, Apple currently reigns as the world’s most valuable company.
Shares of this mega-cap stock have gained 15.5% on a YTD basis. Plus, over the past six months alone, AAPL stock is up 30.7%, easily overshadowing the broader S&P 500 Index’s ($SPX) return of just 8.4% during the same time frame.
Apple's dedication to rewarding shareholders is evident from its decade-long history of consistent dividend increases. The tech giant also made waves in May with a record-breaking $110 billion share buyback, the largest in U.S. history.
In fiscal Q3 alone, Apple returned over $32 billion to its shareholders, including $3.9 billion in dividends and a staggering $26 billion in share repurchases. On Aug. 15, the company paid out a quarterly dividend of $0.25 per share, translating to an annualized dividend of $1.00 per share and a modest yield of 0.45% at current levels.
In terms of valuation, AAPL stock trades at 34.31 times forward earnings, offering a more attractive multiple compared to its Magnificent Seven peer, Nvidia, which is priced at a lofty 45.92 times forward earnings.
Apple’s Q3 Earnings Beat Wall Street Projections
After Apple’s fiscal Q3 earnings results on Aug.1 surpassed Wall Street’s expectations on both top and bottom lines, the company’s shares edged up slightly the following day, even amid a broader market sell-off. The company posted a 5% year-over-year revenue increase to $85.8 billion, narrowly beating forecasts. Earnings also rose 11% to $1.40 per share, surpassing projections by a 4.5% margin.
Apple’s iPad sales soared 24% to $7.2 billion, fueled by the release of new models - the first in two years, which reignited excitement in the product line. While iPhone sales dipped slightly to $39.3 billion, it still remains the company’s financial juggernaut, delivering a hefty 46% of total revenue for the quarter.
In the Services arena, Apple demonstrated a robust 14% annual boost, raking in $24.2 billion from a diverse mix of hardware warranties, Google revenue, cloud storage, and Apple TV+ content. Ending the quarter strong, Apple boasted a solid cash reserve of $153 billion and a total debt of $101 billion, underscoring its financial strength.
Although Apple doesn’t offer forward guidance, management suggested during the Q3 earnings call that they anticipate steady revenue growth in Q4. Management also projected operating expenses to fall between $14.2 billion and $14.4 billion, with gross margins expected to range from 45.5% to 46.5% for the current quarter.
Looking ahead, analysts forecast Apple’s profit will hit $6.70 per share in fiscal 2024, marking a 9.3% increase from the previous year. This upward trend is expected to continue into fiscal 2025, with earnings projected to rise 12.7% to $7.55 per share.
Nvidia's Q2 Earnings Fails to Impress Investors
Nvidia’s much-anticipated fiscal 2025 Q2 earnings results, reported on Aug. 28, once again shattered Wall Street’s expectations, delivering an impressive 122% revenue surge to $30 billion. Driven by skyrocketing demand for its AI processors, the company's data center revenue soared a remarkable 154% year over year to $26.3 billion, accounting for a massive 88% of total sales.
Nvidia’s adjusted earnings also jumped a notable 151.9% annually to $0.68 per share, exceeding projections by 5.7%. Despite these stellar results, Nvidia’s stock fell 6.4% after earnings as investors appeared to have already priced in a major beat. Nvidia’s forecast for 80% Q3 revenue growth, while impressive, underwhelmed a market hungry for bigger numbers.
Adding to concerns were potential delays in the next-gen Blackwell processors, which management indicated may not ramp up until late Q4, pushing a full release into 2025. With such high hopes riding on the company’s future, even a slight stumble in timelines left investors cautious.
What Do Analysts Expect For Apple Stock?
After investors’ underwhelming reaction to AI king Nvidia’s Q2 earnings release, Citi analysts shook things up on Aug. 29 by crowning tech titan Apple their “top AI pick” for 2025, replacing NVDA. According to the investment bank, with the introduction of the A18 chips, improved camera and microphone features, and, of course, AI-powered features, Apple is poised to make a major splash in the AI world with its iPhone 16 lineup.
“Apple’s Sep event is generally all about hardware updates, but we believe the company will put a lot of focus on how the hardware updates for the iPhone 16 family can better support its Apple Intelligence features that is expected to roll out officially later in the fall,” Citi analysts said.
Citi also expects a major update with the iPhone 17 next year, as Apple plans to roll out AI features progressively. This gradual introduction will give developers time to build new apps and help Apple build customer recognition. The investment firm predicts a massive sales boost, forecasting 85 million iPhone 16 units sold in 2024 and 92 million iPhone 17 units in 2025.
Citi analysts further noted that “AAPL stock on average outperformed the broader market since 2016 by 5%-6% over the period of Jun-Q earnings date into the Sep iPhone release date.” Moreover, Citi is confident in Apple's recent CFO transition, viewing it as a smooth, planned succession.
The brokerage firm also noted that early feedback on iOS 18's AI features, like the new tool that removes unwanted objects from photos, suggests a “compelling upgrade for iPhone refresh next year.”
Overall, AAPL stock has a consensus “Moderate Buy” rating. Of the 31 analysts covering the stock, 18 advise a “Strong Buy,” four suggest a “Moderate Buy,” eight say it's a “Hold,” and one analyst advocates a “Strong Sell.”
The mean price target for AAPL is $243.58, indicating an upside potential of 9.5% from current levels. However, the Street-high target price of $300, raised by Loop Capital in July, implies the stock could rally nearly 35% from here.
On the date of publication, Anushka Mukherji did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
