Source: Wall Street News
J.P. Morgan pointed out that judging from the 5G upgrade cycle, the valuation revaluation began the year before the 5G product (iPhone 12 2020) was released. By analogy, the AI upgrade cycle will begin with the iPhone 17 (which is expected to be released in September 2025), and the valuation revaluation will arrive in 2024.
Revaluation in the AI era, is it finally Apple's turn?
Overnight in the US stock market, Apple's stock price experienced a rare surge recently, closing up 4.3%, and its market capitalization soared to 811.3 billion yuan overnight.
According to the news, the M4 chip will focus on AI functions. J.P. Morgan Chase indicated in yesterday's report that the market may reassess Apple's “AI potential.”
J.P. Morgan Chase slightly adjusted Apple's year-end target price from $215 to $210. There is still room for a 20% increase from the current stock price. Based on a positive outlook on the AI-driven iPhone upgrade cycle and service revenue, it gave Apple stock an overrated rating.
Despite Apple's current headwinds, investor sentiment is improving. J.P. Morgan notes:
Currently, Apple is facing challenges such as falling demand and worsening prospects for service revenue growth, including poor iPhone sales in the Chinese market, cancellation of automobile research and development, and the risk of declining service revenue due to regulatory reviews in many regions. However, interest in its shares is rising among a wider range of investors, particularly those who have shunned it due to previous higher valuations.
Apple's investment appeal is mainly due to two major factors: falling valuation premiums and the AI-driven iPhone upgrade cycle.
The valuation premium is moderate: Apple's stock price has fallen 13% since the beginning of the year. The current transaction valuation is 25 times the earnings per share for the next year, which is below the lower limit of the stock price transaction valuation range after the release of the 5G phone (that is, the iPhone 12).
AI-driven iPhone upgrade cycle: Investors are increasingly interested in the cyclical market brought about by AI-driven device upgrades. This expectation is based on the guidance of the 5G upgrade cycle. Long-term investors such as hedge funds place special emphasis on this factor.
Looking further, there may be three major similarities between the AI upgrade cycle and the 5G upgrade cycle:
Hardware adoption is likely to be ahead of consumers' understanding of specific application scenarios, and is more driven by expectations for strong application prospects, although there are still doubts about AI application scenarios.
Due to the upgrade cycle, the replacement cycle can be temporarily accelerated within 2-3 years before returning to normal sales levels.
Lack of backward compatibility — 5G capabilities cannot be activated on previous generation 4G phones, and AI features are not expected to be supported on older phones.
It is worth mentioning that J.P. Morgan pointed out that judging from the 5G upgrade cycle, the valuation revaluation began the year before the 5G product (iPhone 12 2020) was released. By analogy, the AI upgrade cycle will begin with the iPhone 17 (which is expected to be released in September 2025), and the valuation revaluation will arrive in 2024.
Regarding Apple's specific financial outlook, J.P. Morgan predicts that revenue will fall first, then rise, from US$383.285 billion in 2023 to US$375.988 billion in 2024, then increase to 386.715 billion and US$439,576 billion in 2025 and 2026, respectively; profitability continues to increase, and adjusted EBIT and EBITDA are expected to grow steadily from 2024-2026; in terms of net income and earnings per share, it is expected to grow year by year from US$96.995 billion and US$613 in 2023 to 2026 It reached $11.355 billion and $8.30.
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