Throughout the 20th century, the concept of artificial intelligence (AI) remained a fantastical notion akin to flying cars in futuristic movies. Fast forward to the 21st century, and AI is not just a reality but a ubiquitous presence in our lives – from tailor-made social media recommendations to the precise diagnosis of rare diseases. Among the tech giants pioneering this field, emerged players like Nvidia with its indispensable AI GPUs and Microsoft forging ahead with strategic partnerships, notably OpenAI. Late to the AI rendezvous, Apple Inc. (AAPL) recently commanded center stage by introducing “Apple Intelligence” at WWDC on June 10, a move that catapulted its stock to new peaks.
With Apple’s foray into the AI realm, investors face a critical juncture. Steve Eisman, renowned for his exploits in “The Big Short” and now a managing director at Neuberger Berman, once characterized Apple as a stealth AI contender, now recognizing the tech giant as a seminal player in the AI landscape. Eisman’s advice to investors is clear – hold on to your Apple stake. Let’s delve into the reasons driving this optimism.
About Apple Stock
Apple Inc. (AAPL), the California-based juggernaut founded in 1976, is renowned for its groundbreaking tech innovations such as the iPhone, Mac, and iPad. Beyond cutting-edge hardware like AirPods and Apple Watch, Apple excels in services like Apple Music, Apple TV+, and Apple Pay. With a market cap exceeding $3.2 trillion, Apple has redefined digital experiences through a harmonious blend of elegant design and flawless functionality.
Following the unveiling of its “Apple Intelligence” product lineup at WWDC, Apple’s stock surged by approximately 6.3%. The buzz surrounding Apple’s innovative AI-driven upgrades propelled its share price to an all-time high of $220.20 on June 12.
Over the last 52 weeks, AAPL stock has gained 12.5%, surpassing broader market indices like the S&P 500 Index and the Magnificent Seven ETF over the same period. Apple also boasts a commendable dividend streak, consistently raising dividends for 12 successive years.
In May, Apple increased its quarterly dividend to $0.25 per share, marking a 4% uptick. The company’s conservative payout ratio of 14.8% leaves ample room for future dividend hikes. In addition to dividends, Apple pleased investors by committing a substantial $110 billion to share repurchases.
From a valuation perspective, Apple currently trades at 32.58 times forward earnings and 8.39 times sales, positioning it above the industry median but in alignment with tech heavyweights like Alphabet (GOOGL) and Microsoft.
Apple Beats Q2 Earnings Estimates
Apple’s fiscal Q2 earnings results exceeded Wall Street expectations, with total sales reaching $90.7 billion, out of which $66.9 billion stemmed from products and services revenue witnessing a 14.1% annual surge to $23.9 billion. The net income per share stood at $1.53, surpassing the consensus estimate of $1.50. Apple foresees low single-digit year-over-year revenue growth in fiscal Q3, signaling a reversal from recent declines.
Analysts project Apple’s profits to hit $6.58 per share in fiscal 2024, representing a 7.3% year-over-year increase, followed by a further 11.3% growth to $7.32 in fiscal 2025.
Apple’s AI Revolution Begins
During the June 10 WWDC event, Apple made an epochal entry into the AI sphere by introducing “Apple Intelligence,” a personal intelligence system fusing generative AI models with user context. This momentous move unveiled groundbreaking AI features across Apple’s flagship products, underpinned by new OS versions equipped with customizable tools driven by generative AI.
Notable advancements include Siri’s integration with generative chat technology, facilitating intricate interactions and seamless app operations, courtesy of a prominent partnership with OpenAI for cutting-edge AI capabilities.
Apple’s AI-centric strategy aims to redefine the user experience and potentially trigger a substantial iPhone upgrade cycle, a phenomenon eluding Apple in recent years due to sluggish top-line growth.
What Do Analysts Expect for Apple Stock?
Besides Eisman, other analysts also laud Apple’s pivotal role in the current AI narrative. Dan Ives of Wedbush Securities foresees Apple as the vanguard of the consumer AI Revolution, attributing an additional value of $30-$40 per share to Apple’s narrative. Ives maintains a $275 price target on AAPL.
Various analysts have raised their price targets on AAPL, with Melius Research envisioning AI-related iPhone upgrades ensuring earnings visibility well into 2026, elevating their target to $260. CFRA and Bernstein analysts, in distinct reports on June 21, hiked their Apple price targets to $240 per share.
AAPL enjoys an overall “Moderate Buy” rating, with 18 analysts advocating a “Strong Buy,” three recommending a “Moderate Buy,” eight opting for a “Hold,” while one suggests a “Strong Sell.”
Despite trading above its mean price target of $207.82, Wedbush’s Street-high target price of $275 implies a potential rally exceeding 31% for Apple stock.