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Apple (AAPL) has staged a remarkable turnaround from its 2024 lows. The stock has gained more than 30% over the last three months, and is now not only positive for the year, but is up 21.75% in 2024 - which is higher than what the S&P 500 Index ($SPX) has delivered over the period.
Amid the rally in Apple shares, a section of the market is getting apprehensive about the iPhone maker’s valuation, which has arguably run ahead of historical averages. However, I believe the best is yet to come for Apple, and the stock can still rise from these levels.
Apple Stock Hits Record Highs
On Monday, Apple stock hit a record high on the heels of a Morgan Stanley (MS) bull note, and AAPL's market cap was above $3.5 billion at the close. The company has reclaimed its $3 trillion market cap, as well as the status of the world’s largest company - which it first lost out to Microsoft (MSFT), and then briefly to Nvidia (NVDA). While all three remain in contention to retain the title at the end of the year, currently the momentum lies with Apple.
Apple has had a love-hate relationship with sell-side analysts this year. Three brokerages downgraded AAPL stock in the first two weeks of January alone, which was quite a rarity for the company.
Since then, analyst sentiment has turned around – mostly due to optimism over Apple’s artificial intelligence (AI) pivot. The company announced a flurry of AI enhancements to its gadgets at the Worldwide Developer Conference (WWDC) in June. While the market’s initial reaction (quite surprisingly) to these announcements was tepid, the stock gained in subsequent days as markets better digested the news.
AAPL Stock Forecast
Apple now has a “Strong Buy” or “Moderate Buy” rating from over 73% of the analysts in coverage, while the corresponding number three months back was around 66%.
Brokerages have also gradually raised the Cupertino-based company’s target price, and its mean target price now stands at $219.89. While that consensus target price is below the stock's current price, Apple’s Street-high target of $300 – newly raised by Loop Capital – is almost 28% higher than Monday’s closing prices.
Prior to Loop Capital's price-target hike, the Street-high forecast of $275 for AAPL was held by Dan Ives of Wedbush Securities. In a note, Ives said he believes the June quarter will be the last where Apple reports negative growth in China, and that he expects it to return to growth from the September quarter.
Notably, Apple is expected to launch its AI-enabled iPhone 16 in September (going by the usual convention), and most brokerages believe that “Apple Intelligence” will fuel iPhone demand, which has otherwise sagged for the last many quarters.
Ives – who sees a “golden upgrade cycle” for iPhones – added in his note, “We believe AI technology being introduced into the Apple ecosystem will bring monetization opportunities on both the services as well as iPhone/hardware front and adds $30 to $40 per share.”
Is There Still Heat Left in Apple’s Rally?
To be sure, there are bound to be concerns over Apple’s valuations, as its next-12-month (NTM) price-to-earnings (PE) multiple has risen to 33.5x, which is significantly higher than the 26.1x that it has averaged over the last five years. The current multiples are also quite close to the high of 36.6x over the period.
However, I believe Apple's current valuation multiples should be seen in perspective. First, the broader market valuations are currently elevated, and tech stocks in particular are trading at a premium. Second, Apple seems to have finally seen a rerating, as markets start to appreciate it as an AI play. Notably, Apple has seen such reratings before in the past, as the company successfully established itself as a software powerhouse rather than a mere gadget maker.
Finally, Apple’s earnings should also rebound once sales of AI-enabled gadgets take off. These gadgets are expected to command a premium price, which should help support the company’s margins.
Since iPhone sales have been tepid for the last several quarters, customers should have an even bigger incentive to switch to iPhone 16. A Bank of America survey of over 1 million iPhone users showed that less than a quarter of them bought their phones within the last three years. The brokerage sees “a multi-year iPhone upgrade cycle driven by an aging installed base and GenAI features,” and raised Apple’s target price to $256.
All of that said, while the margin of safety in Apple shares is much lower now than it was a couple of months back, I believe the best is yet to come for the stock, and AAPL still has room to run higher in 2024 - especially if iPhone sales take off in the December quarter.
On the date of publication, Mohit Oberoi had a position in: AAPL , NVDA , MSFT . All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
