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Cupertino-based tech titan Apple Inc. (AAPL) has long been a trailblazer in innovation, yet found itself lagging in the artificial intelligence (AI) race. As AI became the tech industry's buzzword, Apple's efforts seemed tepid compared to rivals like Microsoft (MSFT) who aggressively embraced this game-changing technology.
Plus, fiscal 2023 marked a rare setback for Apple, with negative revenue growth across all four quarters - a first since the pre-iPhone era of 2001. Meanwhile, its FAANG peers soared, rebounding as a group from the 2022 market crash and winning investor confidence. Faced with fierce competition in the smartphone space and a perceived AI shortfall, several high-profile analysts downgraded AAPL stock to start this year.
However, despite the initial skepticism, the tide is turning. Wall Street analysts are starting to warm up to Apple once again, with optimism on the rise toward the tech giant. Here's a look at what’s driving this renewed bullish sentiment.
About Apple Stock
Founded in 1976, Apple Inc. (AAPL) is the unrivaled leader in tech innovation. Commanding a staggering market cap of $3.5 trillion, this innovative powerhouse consistently redefines technology standards with its iconic products, such as the iPhone, iPad, Mac, AirPods, Apple Watch, and the revolutionary Apple Vision Pro.
In addition to its impressive array of tech products, Apple recently made its long-awaited foray into the AI landscape with "Apple Intelligence." This strategic move propelled the stock to unprecedented levels. The mega-cap stock soared to a new all-time high of $237.23 on July 15, fueled by bullish analyst notes over Apple's AI ambitions.
After starting the year as a significant underperformer among its Big Tech peers, AAPL stock is firmly back on positive ground on a YTD basis. The stock has now rallied 16.7% since the start of 2024, closing its performance gap with the broader S&P 500 Index ($SPX).
With a decade-long streak of increasing dividends, the company remains committed to rewarding its shareholders. On May 16, the tech giant announced a 4% bump in its quarterly dividend to $0.25. Its annualized dividend of $1.00 offers a 0.44% dividend yield. Apple also announced a historic $110 billion share buyback plan alongside its Q2 earnings, setting a new record in the process.
From a valuation perspective, AAPL stock trades at 35.56 times forward earnings, roughly in line with Microsoft, but lower than other “Magnificent Seven” giants such as Nvidia Corporation (NVDA) and Amazon.com (AMZN).
Apple Beats Q2 Earnings Projections
Following the company’s fiscal Q2 earnings report after the close on May 2, which exceeded Wall Street’s predictions on both the top and bottom lines, Apple shares jumped almost 6% in the subsequent trading session. The tech giant reported revenue of $90.8 billion for the quarter, reflecting a 4.3% decrease from the same period last year, but slightly above the consensus estimate of $90.5 billion.
This continued revenue drop is largely due to a significant 10% year-over-year decline in iPhone sales, which indicates weakened demand for Apple's latest smartphone model, launched last September. During the quarter, the company posted EPS of $1.53, sailing past estimates by a 1.5% margin.
Reflecting on the Q2 performance, CFO Luca Maestri said, “Thanks to very high levels of customer satisfaction and loyalty, our active installed base of devices has reached a new all-time high across all products and all geographic segments, and our business performance drove a new EPS record for the March quarter.”
Looking forward to Q3, management forecasts total revenue growth in the low single digits year over year, while the services business is expected to deliver double-digit revenue growth. The company is expected to report its fiscal Q3 earnings results on Thursday, August 1.
Analysts tracking Apple expect the company’s profit to reach $6.59 per share in fiscal 2024, up 7.5% year over year, and climb another 12.1% to $7.39 per share in fiscal 2025.
Apple's AI Breakthrough
On June 10, Apple joined the AI race by unveiling "Apple Intelligence" at the Worldwide Developers Conference (WWDC). This initiative integrates ChatGPT from OpenAI to bolster iPhone virtual assistant Siri's functionality, a significant step in Apple's bid to close the gap with AI frontrunners like Microsoft and Alphabet (GOOGL).
The upcoming software updates promise not only to revamp Siri with enhanced capabilities and a more engaging persona, but also to introduce creative tools such as real-time emoji creation, dubbed "Genmojis."
The consumer tech company’s move into on-device AI is closely watched, because analysts will be looking for the rollout to spark a much-needed uptick in iPhone sales when new models are launched - expected this September.
What Do Analysts Expect For Apple Stock?
Despite the skepticism surrounding AAPL stock initially this year, the company’s strategic announcement of an AI-enabled smartphone has significantly boosted analyst confidence in the stock. On July 15, Morgan Stanley (MS) listed the company as a "top pick” and also raised its price target to $273.
According to the investment bank, Apple is set to embark on a record-breaking multi-year upgrade cycle fueled by the introduction of Apple Intelligence. Supported by the company’s AI endeavors, Morgan Stanley analysts foresee Apple potentially selling close to a whopping 500 million iPhones in the next two years.
Additionally, on the same day, Loop Capital analyst Ananda Baruah awarded Apple a “Buy” rating and set a price target of $300, marking a new Street-high target for the stock. The analyst sees Apple becoming the preferred hub for generative AI, echoing its historical prowess in capturing market trends with products like the iPhone and iPod.
Overall, AAPL stock has a consensus “Moderate Buy” rating. Of the 30 analysts covering the stock, 20 advise a “Strong Buy,” three say it’s a “Moderate Buy,” six have a “Hold” rating, and the remaining one recommends a “Strong Sell.”
This optimistic consensus marks a notable shift from three months ago, with the percentage of “Buy” or better ratings increasing from 66% then to 76% now.
Even though the stock currently trades nearly flat with its average analyst price target of $224.09, Loop Capital’s Street-high target of $300 suggests that AAPL could rally as much as 33.6% from current levels.
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.
