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Currently valued at a market capitalization of $3.75 trillion, Apple (AAPL) is among the largest companies in the world. Earlier this year, the iPhone maker unveiled its suite of artificial intelligence products called Apple Intelligence, which will be available to users with the iOS 18.2 update. Apple Intelligence includes:
- Genmoji: An AI-powered custom emoji creation tool
- Image Playground: A generative art tool for various media
- Image Wand: AI enhancement of rough sketches in notes
- ChatGPT Integration: Direct access through Siri
- Visual Intelligence: Object/scene recognition (iPhone 16+ only)
These features will be available on devices such as the iPhone Pro 15 and Pro Max, the iPhone 16 series, and iPads and Macs with the M1 chip or later.
Will Apple Intelligence Lead to Device Upgrades?
The much-awaited iOS update could positively impact the iPhone upgrade cycle over the next 12 months. For instance, these features are limited to newer devices, which creates a compelling reason for users of older models to upgrade their phones.
Tech-centric users who want to stay on board with AI capabilities may be more inclined to upgrade to newer models. The integration of ChatGPT and advanced image tools should appeal to business users and creative professionals and accelerate the device upgrade cycle.
Apple Intelligence represents a significant strategic pivot for the company, combining generative AI with personal context while maintaining privacy through private cloud compute.
Is Apple Stock a Good Investment Right Now?
Despite its massive size, Apple continues to grow at a steady pace. In its fiscal fourth quarter, it reported revenue of $94.9 billion, up 6% year-over-year. The iPhone remains the largest business segment, raking in $46.2 billion in sales, an increase of 6% YOY. Apple claimed iPhone sales grew across geographies as its active installed base touched a new record-high globally.
The Services business is the second-largest segment and grew revenue by 12% to $25 billion in Q4. This segment includes revenue from the App Store, Apple Music, Apple Care, Apple TV+ and more. It ended Q4 with more than 1 billion paid subscriptions, an increase of 100% over the last four years. With steady growth in transacting and paid accounts, Apple Services remains a key driver of sales for the company.
Apple expects sales in the December quarter to grow by low- to mid-single digits compared to the prior-year quarter. Notably, Services revenue is projected to maintain double-digit growth in the holiday quarter.
Is AAPL Stock Overvalued?
Analysts tracking Apple expect its revenue to grow from $391 billion in fiscal 2024 to $448 billion in 2026. In this period, its:
- Adjusted earnings are forecast to grow from $6.75 per share to $8.28 per share
- Free cash flow is estimated to increase from $108.8 billion to $131 billion
So, priced at 30x forward earnings and 28.6x forward FCF, AAPL stock trades at a premium despite its substantial growth estimates. In the last 10 years, Apple has grown its earnings per share at a compounded annual growth rate of 14.2%. Given, consensus estimates, its long-term earnings are forecast to expand by 9.5% annually.
Out of the 33 analysts covering Apple stock, 17 recommend “Strong Buy,” four recommend “Moderate Buy,” 10 recommend “Hold” and two recommend “Strong Sell.” The average target price for AAPL stock is $240.79, lower than the current trading price.
