By Teresa Rivas
While other tech stocks have been lifted by the artificial intelligence frenzy, Apple has fizzled.
Its shares were down Monday, even after The Wall Street Journal reported last week Apple was in early talks with Baidu about potentially using Baidu's AI technology in Apple devices in China.
That was good news for Baidu stock, but skeptics argued it was just more evidence Apple is falling behind in the AI game.
Apple was part of the Magnificent Seven big tech stocks that powered much of 2023's rally, but shares have fallen this year, in no small part from worries over its AI program.
Certainly there are other concerns, such as weakening Chinese iPhone sales and a new antitrust lawsuit. But given AI enthusiasm has been the biggest driver for tech stocks -- it has allowed Nvidia to nearly double since the start of 2024 -- worries Apple is losing its edge have been a big headwind for the shares.
Analysts argue it never pays to underestimate Apple.
"We have seen Apple's back against the wall before and we view this period as just another chapter in the Apple growth story with AI now on the doorstep of coming to Cupertino," writes Wedbush analyst Dan Ives in a new note Monday.
With an Outperform rating and $250 price target on Apple, Ives is one of the more bullish analysts. But he isn't alone.
Melius Research's Ben Reitzes reiterated a $220 price target on Apple Monday as well, writing that in the near-future, the iPhone will be even more useful when consumers use AI-driven voice commands to get things done.
"Apple will likely offer their own AI apps, perhaps through an upgraded Siri and its own assistant that can be integrated into non-Apple Apps too," Reitzes believes. That could drive an iPhone supercycle -- such as the 2014-2015 boom -- as soon as 2025, as software and security features on new models will be needed for users to get the most out of the new AI capabilities.
That said, not everyone is convinced. Monday saw UBS analyst David Vogt reiterate his Neutral rating on Apple. Rather than an AI future, he is more concerned about the present state of Apple's China business.
He cites his recent survey work, which showed that while U.S. iPhone retention rates are relatively stable at 80% -- in-line with much of the rest of the world -- the picture is murkier in China. There, "data bears closer scrutiny particularly given the share gains by Huawei in recent months and general market softness in the region."
Even bulls have been concerned about lagging iPhone sales as domestic Chinese competition rises.
Still, Wedbush's Ives argues Apple isn't giving up on China. To the contrary, he believes Chief Executive Tim Cook's recent trip to the nation shows Apple could double down on its strategy there by increasing its investments in retail footprint.
With Apple down some 11.5% since the start of 2024, it appears most investors aren't as optimistic. Nonetheless, if the company could prove its AI potential has been underestimated, both in the U.S. and abroad, that would lead to renewed interest in the shares, even if China and the antitrust case remain headwinds.
Melius's Reitzes argues it can just do that, with tech and strategy in place to take a leading roll as generative AI rolls out more broadly across the smartphone case.
Or as he puts it: "Apple may still have the last laugh."
Write to Teresa Rivas at teresa.rivas@barrons.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
March 25, 2024 13:37 ET (17:37 GMT)
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