/Apple%20Logo%20on%20Store%20Front.jpg)
Apple (AAPL) held its Worldwide Developer Conference (WWDC) last week. While markets shrugged off the keynote last Monday and AAPL closed in the red that day, the stock rebounded the next session to reclaim a $3 trillion market cap. AAPL then soared to a new record high on Tuesday - and amid the continued rally, became the world's biggest company yet again, after having lost the crown to Microsoft (MSFT) in January.
After the breakout rally in Apple, which - coupled with continued gains in Nvidia (NVDA) - helped to catapult the tech-heavy Nasdaq Composite ($NASX) to record highs last week, news headlines about the iPhone maker are all over the place, and quite literally.
Apple Stock Looks Mixed on Technical Parameters
While some see AAPL stock getting overbought – its relative strength index (RSI) is 75.79 – it also formed a bullish technical pattern known as the “Golden Cross" formation. However, while some technical parameters look bearish, Apple’s overall technical indicators signal a “Buy”.
A section of the market believes the rally in Apple shares will continue, but some others see the rally driven by the announcements on artificial intelligence (AI) – or what Apple rechristened “Apple Intelligence” – fizzling out soon.
Apple's market cap, based on Friday’s closing prices, was slightly below that of Microsoft’s - though both tech giants are blazing higher again to start the week. Here’s what’s next for Apple, and how high analysts believe the stock could go after unveiling its Apple Intelligence.
Apple Stock Forecast: How High Can AAPL Go?
Apple has a consolidated rating of “Moderate Buy” from the 30 analysts covering the stock. Eighteen analysts rate it as a “Strong Buy,” and 3 as a “Moderate Buy.” Eight analysts rate the Cupertino-based company as a “Hold,” while 1 analyst rates it as a “Strong Sell.”
Apple’s mean target price of $206.96 is below its current price levels. Its Street-high target price of $275 (via Wedbush), however, is almost 30% higher than Friday’s closing prices.
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, however, analyst sentiment has slowly been turning around. In April, Bernstein upgraded Apple to “outperform” from “market perform.” After the WWDC, DA Davidson upgraded AAPL stock to “buy” from “neutral” and raised its target price to $230 in “expectation of an iPhone upgrade cycle.”
Several other brokerages also raised Apple’s target price following the WWDC. However, despite these hikes, Apple is still trading above its mean target price. I believe this is largely due to the majority of analysts not yet refreshing their target prices after the WWDC announcements. Also, markets might still not be fully appreciating how the AI pivot could lead to an iPhone refresh cycle.
How Will AI Turbocharge Apple’s Growth?
As I have discussed multiple times, the next wave of AI will help to drive sales of gadgets, including PCs and smartphones. This will benefit companies like HP (HPQ), Apple, and Samsung.
Since Apple’s latest iPhone will likely go on sale in September, the company will realize revenues from the product mostly in the next fiscal year. Apple posted a YoY fall in revenues in the last fiscal year, and analysts expect the Tim Cook-led company’s sales to rise by just under 1% in the current fiscal year, which will end in September.
Analysts are factoring in a 6.4% rise in Apple’s revenues in the next fiscal year. However, Gene Munster of Deepwater Associates – who believes Apple will outperform Nvidia over the next year – believes these estimates are too conservative. The famed tech analyst expects Apple’s sales to rise in double digits in the next two fiscal years as AI triggers a massive refresh cycle.
Also, and as HP has also talked about, Munster believes that AI-enabled iPhones will aid in margin expansion, as they will ideally be priced higher than the other models.
Should You Buy Apple Stock?
Headline valuation metrics might show Apple stock is a bit overvalued after last week’s rally. For instance, Apple’s next 12-month (NTM) price-to-earnings (PE) multiple of 31.1x is almost the highest it has been in the last three years. For context, the multiple has averaged 26.6x over this period.
However, I believe the multiples might not portray the real picture. First, analysts are factoring just over 10% YoY growth in Apple’s earnings per share in the next fiscal year, which might be a bit too conservative if we indeed see a refresh cycle with the iPhone 16.
Second, Apple is due for a rerating amid its AI pivot. It was, incidentally, the only Big Tech company that hadn’t yet received any “AI respect” over the last year - before of course, the WWDC helped change the perception that Apple was slacking in its AI efforts.
Overall, I would expect Apple stock to add to its recent gains in the coming months, and wouldn’t be too perturbed by the currently elevated valuation multiples, as the company seems poised to embark on one of its biggest growth phases with Apple Intelligence.
On the date of publication, Mohit Oberoi had a position in: AAPL , MSFT , NVDA . All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
