AAPL is on Fire : But Don't Buy Now! Really?

$Apple(AAPL)$  

Apple stock has been on a tear since it convinced investors it has a viable artificial intelligence (AI) strategy.

Barron’s is reporting, it might not be time to load up on the shares, at least if some cautious analysts are to be believed.

Apple stock is up about +16.72% YTD to $216.67 (as of 17 Jun 2024). (see above)

Much of that gain coming since Monday’s (17 June) close.

The rally comes after the company’s Worldwide Developers Conference (WWDC) announcement about bringing artificial intelligence features to the iPhone.

The market hopes that will spur a strong upgrade cycle, one that sends the stock higher.

Unfortunately, the time to buy Apple stock was supposed to be before the conference and the stock needs yet another catalyst to keep heading higher.

$Citigroup(C)$   Analyst Atif Malik has:

- Removed his Positive Catalyst Watch on Apple Inc, even though he left his “Buy” rating intact.

- Declared that “Catalyst WWDC24′ has expired, even though it trades above his $210 price target.

- A larger worry and that is Apple’s valuation. The stock typically trades at a premium valuation to the S&P 500, its consistent earnings growth, hefty cash pile, and ability to successfully invest in new areas see to that. 

However, the shares now:

- Trade at 30x expected earnings per share for the coming 12 months.

- Is +43% above the S&P 500’s 21x.

- According to Barron’s calculation of FactSet data - a premium to the 26% average premium over the past 10 years.

Apple may not deserve that kind of premium.

The earnings growth, though consistent, is not particularly impressive.

Technically speaking, according to FactSet:

- Analysts expect earnings per share to grow at about +8% annually in 2025 and 2026.

- This will be a couple of percentage points below the S&P 500’s expected growth.

- Its current P/E is more than 3x the earnings growth, well above its 10-year average of 1.8x expected earnings growth.

- That means Apple investors are paying more for every unit of growth they receive, one point higher than the S&P 500’s ratio of P/E to growth.

Recourse.

Apple could grow into that valuation:

- If its AI capabilities lead to a stronger-than-expected upgrade cycle.

- Earnings that exceed analyst forecasts.

Still, it is too early in the game and unclear that the AI enhancements to the iPhone will be enough to get consumers to pay higher prices for new phones.

Dangling precariously — a disappointing iPhone season could act as a catalyst to bring the stock down.

According to Maxim Group, Analyst Tom Forte:

- There are higher expectations in Apple shares, now.

- This could pressure this stock in the next 12 to 18 months.

- Especially so, if Apple Intelligence does not result in revenue growth in iPhones.

- Has a $178 price target and “Hold” rating.

- Predicts, starting in September or December quarter, all these expectations could start weighing on the stock.”

To the bears, the combination of (a) disappointing earnings and (b) a high valuation, leaves Apple looking overpriced and vulnerable to declines.

And definitely not a Buy.

My viewpoints (mine only) 

I think Barron’s has omitted the potential sales from its Vision Pro headset.

If above forecast is anything to go by, it could take the world by storm when output production ramps up, resulting in costs per headset to fall - leaving a much wider and desired margin.

However, it is true that at this early stage of Apple’s AI journey, the optimism bestowed by investors and Wall Street is based off Apple’s historic achievements.

And of course, its stock has been priced forward.

If Citibank and Maxim Group analysts have gone thru TC’s post (see above), they might possibly have a different viewpoint about Apple’s AI endeavour.

During Apple’s WWDC, the IT giant has demonstrated taking a more cautious approach to AI.

Instead of overwhelming users with too many AI features to count, the Cupertino tech giant is carefully rolling out AI where it believes it could be useful.

That means the tech won’t be included where it could be much of a threat to the carefully crafted consumer experience of using an Apple device.

Apple is also integrating the new AI features in iOS 18 in a more practical way. 

This includes (a) writing help, (b) proofreading tools, (c) AI summaries and transcripts, (d) prioritized notifications, (e) smart replies, (f) better search, (g) photo editing, (h) smarter Siri, and (i) a version of “Do Not Disturb” that automatically understands what important messages need to come through, among other things. 

By narrowing its focus and usability, Apple is more assured of providing users with expected results, not hallucinations like ChatGPT or Gemini (as reported in media).

Doing so, limit & mitigated dangers and safety concerns that come from AI misuse and prompt engineering. 

This is how Apple Intelligence succeeds. It feels like a new layer to user’s existing apps, where it’s solving everyday problems.

It is not trying to take over the world, the way experts and fleeing OpenAI execs keep warning us AI will eventually do.

Reading up to this point, do you remain confident that Apple could succeed in its AI implementation and propel its stock price higher ? I do !

Do you think Apple will pull back this week, in preparation for the next climb.?

Do you think (based off WWDC sharing) Apple is on the “right” track when it comes to AI implementation for its fan-users?

If you find this post interesting, give it wings! ️ Repost and share the insights ?

Do consider “Follow me” and get firsthand read of my daily new post. Thank you.

@Daily_Discussion

@TigerPM

@TigerStars

@Tiger_SG  

@TigerEvents  

# 💰 Stocks to watch today?(5 July)

Disclaimer: Investing carries risk. This is not financial advice. The above content should not be regarded as an offer, recommendation, or solicitation on acquiring or disposing of any financial products, any associated discussions, comments, or posts by author or other users should not be considered as such either. It is solely for general information purpose only, which does not consider your own investment objectives, financial situations or needs. TTM assumes no responsibility or warranty for the accuracy and completeness of the information, investors should do their own research and may seek professional advice before investing.

Report

Comment9

  • Top
  • Latest
  • Taurus Pink
    ·06-21
    TOP
    [龇牙] [龇牙] [龇牙] [龇牙]
    Reply
    Report
    Fold Replies
    • JC888
      Hi, tks for reading my post and support.
      My Sunday Pick post is out and it's on US national debt and it's impact on US Economy and US market...
      Hope you liked them too....
      06-23
      Reply
      Report
  • OYoung
    ·06-21
    TOP

    Apple must go up, I am hunger for profit

    Reply
    Report
    Fold Replies
    • JC888
      Hi, tks for reading my post. Glad you liked it. Watch out for my new post out this evening ok.... Tks
      06-25
      Reply
      Report
  • neversell
    ·06-21

    Buy it when it pulls back

    Reply
    Report
    Fold Replies
    • JC888
      Hi, tks for reading my post. Hope u liked it.
      AAPL is up slightly this Monday morning...
      I have a new Pick post on Tesla and it's CEO out today... Watchout for it. Njoy!!!!
      06-24
      Reply
      Report
  • JC888
    ·06-20
    Hi, tks for reading my post. I make time to write and share my post.
    Pls help to "Re-post". Tks! Rating is important (to me).
    Would you consider "Follow me" and get first hand read of my Daily new posts? Thanks!). Tks!
    Reply
    Report
  • qingg123
    ·06-20
    Great insight
    Reply
    Report
    Fold Replies
    • JC888
      Hi, tks for reading my post. Glad you liked it.
      Watch out for my other posts too.... Thanks.
      06-20
      Reply
      Report