Apple | Fundamental Analysis

The past year has been less than stellar for Apple investors, with shares of the tech giant rising only 13%, compared to the Nasdaq-100 Technology Sector index's 24% gain over the same period. However, a closer examination of recent stock movements suggests that Apple is regaining momentum.

In the past three months, Apple stock has surged 33%. This impressive performance is largely due to Apple's much-anticipated entry into artificial intelligence (AI) and a recovery in the smartphone market. But can these factors sustain Apple's stock rally and deliver robust gains over the next year?

Market research firm IDC recently reported a 6.5% year-over-year increase in smartphone shipments for the second quarter of 2024. Apple held a 15.8% market share, making it the second-largest player in the smartphone market. Despite this, Apple's shipments grew by only 1.5% year over year, resulting in a slight decrease from its 16.6% market share in the same period last year.

This modest growth in Apple's shipments was expected, as the current iPhone generation is nearing its one-year mark. The upcoming launch of AI-enabled iPhones in a few months is anticipated to boost shipments.

Earlier this year, Apple introduced Apple Intelligence, a suite of AI features for iPhones, iPads, and MacBooks. This AI tool allows users to summarize, proofread, and create different versions of text, and prioritize time-sensitive messages in their inboxes.

Another notable feature of Apple Intelligence is its ability to convert audio recordings into text-based summaries and transcripts. These AI capabilities will be available on iPhone 15 Pro models, iPads, and MacBooks with M1 or more powerful chips, encouraging users to upgrade to the latest devices to access these features.

The iPhone 16 models, expected to be fully AI-enabled, could see a significant increase in sales. Bloomberg reports a potential 10% increase in iPhone shipments this year, driven by AI integration. This is just one way Apple could benefit from AI.

IDC noted that Apple's personal computer (PC) shipments rose nearly 21% year over year to 5.7 million units in the second quarter, far outpacing the 3% growth in overall PC shipments. This trend may continue as Apple plans to update its MacBook lineup to support AI features.

With AI-enabled smartphones and PCs as strong growth drivers, Apple is well-positioned for the coming year. Gartner predicts that 295 million generative AI-powered smartphones and PCs could be shipped in 2024, compared to just 29 million units last year. This suggests a strong potential for Apple's growth to exceed market expectations over the next year.

Analysts project Apple to conclude the current fiscal year, ending in September, with $387.4 billion in revenue, marking an 8% increase from the previous year. They expect revenue growth to stay in the high-single digits for fiscal 2025 as well.

However, the surge in MacBook sales, the introduction of AI-enabled smartphones, and the potential boost in services revenue if Apple monetizes its Apple Intelligence platform could drive faster growth than analysts anticipate in the next year and beyond. These factors have contributed to the recent upward revisions in Apple's price targets.

Morgan Stanley has raised its price target for Apple stock to $273, representing a 21% increase from current levels. Loop Capital has set an even higher target of $300, indicating a potential 33% rise. The AI-related growth prospects suggest that Apple could meet market expectations and maintain its stock market momentum, leading to stronger gains in the coming year.

Therefore, investors might benefit from keeping Apple stock in their portfolios, as the company appears poised for a more prosperous year ahead compared to the previous one.

As long as the price is above 210.00, follow the recommendations below:

If the level of 210.00 is broken-down, follow the recommendations below: