Apple shares have set an all-time high and the stock is hovering just below $200. There are three reasons to think Apple can break through the barrier.
Apple shares were rising slightly in premarket trading to $198.09 on Thursday, having closed at an all-time high on Wednesday.
Stockholders looking for it to break higher should be confident despite its recent run of four quarters of declining year-over-year revenue, according to Citi's analysts.
"We believe the bears on the stock are missing the structural gross margin expansion story driven by iPhone premiumization, acceleration in services sales, and the silicon insourcing benefit. ... We expect the above trends to continue next year, and view AI Phones and Vision Pro adoption as potential upside catalysts," Citi analyst Atif Malik wrote in a research note.
Malik has a Buy rating and $230 target price on Apple stock.
While much of the debate around Apple stock revolves around its hardware, Malik argued services are still providing a growth engine and look set to keep growing as a source of revenue in 2024.
"With an increasing installed base and penetration/attach rate, we believe Apple Care, iCloud and other licensing services will be the fastest growing services segments, reaching about 45% of the total services revenue in FY2025 and driving upside to Street's overall gross margins," Malik wrote.
Meanwhile, demand for iPhones will continue to be a near-term question. Malik wrote that while Huawei does seem to be resurging as a domestic rival in China, Apple could benefit from iPhone sales growth in emerging markets, especially India due to the current low penetration rate.
"Apple doesn't appear to have meaningfully shifted iPhone 15 2023 builds since it started shipping devices despite concerns that Chinese consumers are shifting towards Huawei or that macro issues might be weighing on iPhone demand," Wedbush analyst Dan Ives wrote in a research note on Thursday.
Ives has a $250 target price on Apple stock and an Outperform rating.
On top of the near-term services and hardware outlook, Citi's Malik also said there were longer-term potential tailwinds in demand for smartphones with artificial-intelligence capabilities and Apple's virtual-reality headset.
"The next developments around AI on the phone could be to take personal assistance to the next level to make day-to-day tasks easier, which could lead to higher demand for processing and storage, and further premiumization. The real impact could be beyond 2025/2026," Malik wrote.
In addition to AI-enabled phones, Apple also has another long-term potential catalyst in its Vision Pro headset.
Analysts at UBS suggested that at a price point of $3,499 the first generation of the device could generate around $1.4 billion of revenue in fiscal 2024, rising to $3.2 billion in fiscal 2025.
"The second-generation device will have the same capabilities as the first, but will be smaller and lighter, making it more comfortable," UBS analyst David Vogt wrote in a research note.
Vogt has a Neutral rating and $190 target price on Apple stock.
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