Since Apple Intelligence was announced, the stock has continued to rise, and more analysts have raised their ratings. However, concerns about its high valuation and whether AI will ultimately translate into a super cycle have also arisen.
All the large tech companies are trying to convince Wall Street that they will be major players in the artificial intelligence (AI) boom. But it seems that few companies can compare with Apple Inc.
Analysts are becoming increasingly unanimous in their belief that the upcoming iPhone with AI capabilities will stimulate consumers to upgrade their phones after using old models for many years, bringing long-awaited growth rebound to Apple. Since the company announced Apple Intelligence, the stock has continued to rise, and more analysts have raised their ratings.
As of Friday's close on the US stock market,$Apple (AAPL.US)$It rose 0.06% to $224.31 at Friday's close, a gain of about 21% for the year to date.
Bullish sentiment remains.
Morgan Stanley analyst Erik Woodring on Monday reiterated his buy rating on Apple and raised his target stock price to $273 from $216. He praised the tech giant as his "preferred stock," saying that the upcoming launch of the Apple Intelligence AI platform is expected to significantly boost hardware sales.
Igor Tishin of Harding Loevner LP is one of the latest analysts to express bullish sentiment. He said that Apple's performance in AI was "excellent" despite lagging behind last year, and he rated Apple as a "buy".
"I don't know how profitable it will be in the short term, but except for the first year, I think AI can help Apple create huge value in the second and third years," he said.
Loop analyst Ananda Baruah agrees and expects substantial growth in iPhone demand due to AI. In a report, he wrote: "Over the next few years, Apple has the opportunity to consolidate its position as the AI 'hub of choice' for consumers, just as it did 15 years ago with the iPhone."
The device upgrade cycle will be meaningful. According to data compiled by the media, the iPhone is Apple's largest business to date, accounting for more than half of its fiscal 2023 revenue. However, last year's iPhone revenue declined by 2%, indicating that the battery and camera improvements in iPhone 14 and iPhone 15 are not enough to attract consumers.
AI features, including the integration of ChatGPT with OpenAI, could change this. According to the media, more than 40% of Apple's 0.8 billion smart phone users use iPhone 12 or earlier devices, while another 27% use iPhone 13. Currently, less than 10% of users have phones that can be upgraded to AI software.
Concerns abound. People's positive response to Apple Intelligence has pushed Apple's stock price up 36% since its low point in April, adding about $900 billion to its market value and making it the world's largest stock once again. But this has also pushed the company's valuation above historical levels. Given Apple's huge weight in the index, this is also of great significance to the entire market.
The current expected price-earnings ratio for Apple's stock is more than 31 times, more than 50% higher than the 10-year average level, and close to its highest level since early 2021, when the company was growing much faster and interest rates were much lower.
Some people believe that the market overestimates the potential benefits of AI, especially after the launch of the phone, and that it may take some time to achieve an upgrade cycle.
"ChatGPT and Gemini are exciting, but do they really affect consumer purchasing decisions? It's too early to reach a conclusion now, "said Matt Stucky, chief portfolio manager of stock investments at wealth management firm Northwestern Mutual Wealth Management.
Similarly, UBS believes that the desired "AI super cycle" is unlikely and that optimism about future growth is misplaced. Analysts, led by David Vogt, wrote that "our analysis of regional smartphone demand, past cycles, income demographics, and operator subsidies suggests that next year's cycle will be more moderate." Vogt rated Apple's stock as neutral.
Similarly, UBS also believes that the hoped-for "ai supercycle" is unlikely to occur, and the optimistic sentiment for future growth is misguided.
Although Apple's ratings have recently improved, compared to other large technology stocks, Wall Street is more skeptical of Apple. Less than 70% of analysts recommend buying the stock, while the same percentage for Microsoft, Amazon, and Nvidia is close to or exceeds 90%. The stock has already exceeded the analysts' average target price, suggesting that the excitement over artificial intelligence may have already come to an end.
Editor/Somer