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In a world driven by cutting-edge technology, Cupertino-based Apple Inc. (AAPL) is a pioneer, consistently launching products that captivate millions. From iPhones to Macs, Apple’s innovation is unmatched, creating an ecosystem deeply ingrained in our lives. AAPL stock remains a cornerstone in countless portfolios, reflecting the company’s enduring impact and appeal.
Yet, in a surprising twist, legendary investor Warren Buffett has slashed his Apple holdings from his Berkshire Hathaway (BRK.A) (BRK.B) portfolio – a move that grabbed headlines this past week. When the "Oracle of Omaha" acts, the market listens carefully, and this time is no different, as AAPL shares took a hit on the news. But with the stock still the top holding by far in the Berkshire portfolio, analysts are still optimistic about Apple, forecasting more upside to come as the tech giant makes strides in artificial intelligence (AI).
So, is this a golden opportunity to grab Apple shares while they are down over 10% from their peak? Let’s take a closer look.
About Apple Stock
California-based Apple Inc. (AAPL), incorporated in 1977, is a tech titan known for its game-changing consumer electronics like iPhones, iPads, and Macs. This "Magnificent Seven" stock, with a market cap of $3.2 trillion, dominates not just with hardware, but also with software and digital services. Continuously shaping tech trends and design, Apple thrives on its loyal customer base and innovative ecosystem, setting the pace for the industry.
Shares of Apple have gained 21.4% over the past 52 weeks, though they have pulled back 10% from the all-time high of $237.23 set on July 1. The stock’s climb was driven by excitement over Apple’s AI push, with Morgan Stanley (MS) naming it a "top pick" on the news and raising its price target.
After lagging behind its big tech rivals earlier this year, AAPL is back in the game, up 12.3% on a YTD basis and rallying 17.2% over the past three months.
Apple's decade-long run of paying dividends underscores its unwavering commitment to shareholders. On Aug. 1, the board declared a $0.25 per share dividend, payable on Aug. 15. Its annualized dividend of $1.00 per share translates to a 0.47% yield.
Additionally, in May 2024, Apple announced a record-breaking $110 billion share repurchase authorization - the largest in U.S. history - further solidifying its dedication to rewarding investors while capturing growth opportunities.
In terms of valuation, the stock is trading at 31.03 times forward earnings and 8.30 times sales – roughly in line with its mega-cap peers.
Apple’s Q3 Beats Wall Street Projections
Following Apple’s fiscal Q3 earnings results on Aug. 1, the stock closed slightly higher the next day, shaking off widespread selling on Wall Street as the stock smashed past forecasts. While revenue rose 5% annually to $85.8 billion, beating estimates by 1.7%, its EPS climbed 11% to $1.40, also topping estimates by 4.5%.
Apple's product sales, making up 71.8% of total revenue, edged up 1.6% annually to $61.6 billion. Its services segment, representing 28.2% of overall sales, surged 14.1% to $24.2 billion.
However, Apple’s ongoing sales decline in China continued. Revenue from the region, a critical market, dropped 6.5% year over year to $14.7 billion. Meanwhile, iPhone sales, though down 1% to $39.3 billion, showed signs of stabilizing after a 10% annual drop in Q2.
Looking ahead, Apple's plan to roll out AI-powered features in the next iPhone release could be a game-changer. The upcoming AI tools, set to enhance Siri's capabilities and introduce fun new features like custom emojis, will be part of a software update expected this autumn. These features, however, will only be available on iPhones equipped with Apple’s advanced AI chip, currently found in two premium models. With the iPhone 16 expected to include this AI chip, analysts predict a surge in upgrades from users clinging to older devices.
Financially, Apple’s strong operating cash flow of $29 billion in Q3 enabled it to return over $32 billion to shareholders through dividends and share buybacks. Despite challenges in product sales, the company continues to post revenue growth and expand its financial reserves, setting the stage for a potentially strong Q4 as new products launch in September.
Apple anticipates Q4 revenue growth mirroring Q3's year-over-year pace, with the services segment expected to see double-digit growth. Gross margins are projected to range between 45.5% and 46.5%, with operating expenses estimated between $14.2 billion and $14.4 billion. As Apple continues to invest in AI, the company remains well-positioned for future growth.
Analysts tracking Apple expect the company’s profit to reach $6.68 per share in fiscal 2024, up 9% year over year, and climb another 12.6% to $7.52 per share in fiscal 2025.
Apple's Stock Dips
On Aug. 5, Apple stock took a 4.8% hit, pacing losses in a red day for markets after news broke over the weekend that Berkshire Hathaway, led by Warren Buffett, had halved its AAPL holdings last quarter, extending a trend that began earlier this year. Buffett, known for his long-standing admiration of Apple, sold an additional 390 million shares in Q2 worth $90 billion, on top of 115 million shares in Q1.
Buffett's sell-off might signal a shift, but there's more to the story. While it suggests the Oracle of Omaha may be cooling on Apple, context matters. When Berkshire first trimmed its Apple stake in Q1, Buffett hinted the move was driven by tax considerations, anticipating higher corporate tax rates in the future.
Despite the recent sales, Apple remains Berkshire’s largest equity holding, valued at around $84.2 billion. In fact, Buffett mentioned at Berkshire's annual meeting in May that it was "extremely likely" Apple would remain the company's biggest position through 2024.
For investors, this dip might not be a reason to follow Buffett’s lead but rather an opportunity to buy into Apple’s robust AI initiatives and cash flow while the stock is momentarily weaker.
What Do Analysts Expect for Apple Stock?
Multiple brokerage firms, like Citigroup (C), Rosenblatt, Goldman Sachs (GS), Piper Sandler, and Wedbush, have all become more bullish, raising their target prices on AAPL following Apple's stellar Q3 earnings.
Most recently, on Aug. 6, Morgan Stanley analyst Erik Woodring maintained his previous target price of $273 on AAPL and kept an "Overweight" rating. Woodring highlighted Apple’s strong future in AI for smartphones as a major boost.
He added, "Apple Intelligence is a clear catalyst to boost iPhone and iPad shipments." With the new tech now compatible with just 8% of iPhone and iPad devices and 1.3 billion iPhones in circulation, the analyst believes that Apple could sell nearly 500 million iPhones over the next two years.
AAPL stock has a consensus “Moderate Buy” rating overall. Of the 30 analysts covering the stock, 20 advise a “Strong Buy,” three suggest a “Moderate Buy,” six say it's a “Hold” rating, and the remaining one analyst has a “Strong Sell.”
The mean price target for AAPL is $239.41, indicating an upside potential of 10.7% from current levels. The Street-high target price of $300, from analysts at Loop Capital, implies the stock could rally as much as 38.7%.
On the date of publication, Sristi Suman Jayaswal 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.
