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Apple (AAPL) is one of the most recognized companies globally, and anyone who bought Apple shares a decade back will not be regretting it now. The stock has gained roughly 1,000% in the last 10 years, thanks to its constant innovation to offer a diversified range of high-quality products to consumers. It has now become a household name, and consumers eagerly await the annual release of iPhones.
However, lately, it appears the company is losing its steam by failing to provide any substantive upgrades to its products. The recent iPhone 15 launch did not please investors. However, the artificial intelligence (AI) rally has benefited tech stocks hugely this year. Apple’s stock is up 38% year-to-date, outperforming the 28% rise for the Nasdaq Composite ($NASX).
That said, AAPL is now trading 10.8% below its 52-week high. Let’s take a look at this correction, and how Apple might maintain its winning streak going forward.
What’s Happening With Apple?
Over the years, Apple's products have included the Macintosh, iMac, iPod, iPad, Apple Watch, iPhone, and Air Pods. Its distinct strength is its integrated ecosystem, which enhances user experience. Apple also provides services such as iCloud, Apple Music, Apple TV, and Apple News.
For its Q3 ended July 1, services revenue increased by 8% year-over-year to $21 billion. Product revenue, on the other hand, fell by 4.4% to $60.5 billion. In 2023, rising inflation took a hit on spending, affecting most consumer companies. With the launch of a new iPhone or any other product, Apple mostly expects a sales boost from customer upgrades or conversions from Android users. However, over the last few years, Apple hasn’t made many significant hardware updates that might entice customers to upgrade. It released its iPhone 15 models in September.
Soon after the launch, Ben Wood from CCS Insight told BBC, “It isn't a surprise given the maturity of the iPhone and Watch. It reflects just how refined the iPhone and Watch devices are and how tough it has become to deliver truly disruptive updates every year."
What’s Next for Apple?
When Apple announced its Vision Pro Headset in June, it took a significant step into the augmented reality (AR) market. The device will cost around $3,500 and will be available in early 2024. Credit Suisse analysts predicted that Apple would ship more than one million units in the first year.
Though impressed with the technology, many analysts believe Vision Pro will take time to be widely accepted because of its high price. It will also face competition from Meta Platforms' (META) Quest 3, which is quite low-priced at $500. However, according to Reuters, Apple had asked its Chinese supplier to scale down production by 400,000 units in 2024, due to the complex design. Apple set an initial goal of 1 million units in the first year.
In the future, Apple's product popularity among teenagers could be its strongest growth driver. According to a Piper Sandler teen survey, 87% of teens own an iPhone, with 88% planning to purchase one soon. Approximately 34% of the teens polled own an Apple Watch. Generally, most Apple users find it difficult to switch to other products. The company's emphasis on aesthetics, simplicity, and ease of use has earned it a devoted and loyal following. Plus, thanks to that integrated ecosystem, most users are enticed to buy other Apple products - such as AirPods, Mac, iPad, and Apple Watch.
Since the device's launch, Apple has resolved the iPhone 15 overheating issues with a software upgrade. Separately, France’s regulatory agency also lifted the ban on iPhone 12, after it cleared the country’s electromagnetic radiation regulations.
Furthermore, reports indicate Apple and Microsoft (MSFT) may be collaborating to create a search engine to replace Google (GOOGL). Apple is also working on reducing its reliance on China as a supplier. These positive factors may increase sales over time.
What Are Analysts’ Views on AAPL?
Though the sales trend isn't promising for this year, many analysts believe it will improve next year. According to Wedbush Securities analyst Dan Ives, the iPhone 15 Pro and Pro Max will contribute to around 75% of the device sales in 2024. Meanwhile, J.P. Morgan (JPM) said the demand for iPhone 15 might be fading based on a decline in lead times. Along with the new iPhone, Apple also introduced the Apple Watch Series 9.
Overall, analysts predict that Apple's revenue will dip to $89.3 billion in Q4 2023, down from $117 billion in Q4 2022. EPS could also be $1.39 in Q4 2023, down from $1.88 in the year-ago period. For the year ending Sept. 2023, revenue forecasts call for $383.6 billion, a dip of 3% year-over-year. Revenue, could, however, rise by 6.0% to $405.6 billion for the year ending Sept. 2024.
The consensus EPS estimate for the fiscal year ending Sept. 2024 is $6.58, up from the EPS of $6.05 expected for fiscal year 2023. That would mark year-over-year growth of 8.8%. Apple will release its Q4 and full-year results on Nov. 2. Priced at 27 times forward earnings, the company is reasonably valued at current levels.
Wall Street remains bullish on AAPL. At present, out of the 29 analysts following Apple stock, 17 have a “strong buy” recommendation, 3 propose a “moderate buy,” and nine call it a “hold.” The stock has no “sell” recommendations.
Based on analysts' average price target of $206.03, Wall Street expects potential upside of about 15% in the next 12 months. The highest target price stands at $240 and the lowest at $140 for AAPL.
The Key Takeaway
According to a BBC report, Apple's CEO Tim Cook stated that the company will increase its AI development spending to hire more talent, particularly in the UK. Apple has already been working on several AI projects, the most notable of which is Siri, its AI-powered voice assistant.
Though this year hasn’t been favorable, Apple’s efforts to innovate and create products that resonate with users worldwide - all while incorporating AI - could help it maintain its legacy in the long run. For long-term investors who believe in Apple’s ability to innovate, now would be a good time to buy the dip in AAPL.
On the date of publication, Sushree Mohanty 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.
