Apple (AAPL) has undergone a dramatic resurgence from its lows in 2024. Over the past three months, the stock has surged by more than 30%, propelling it into positive territory for the year with a remarkable 21.75% uptick in 2024. This growth outpaces the performance of the S&P 500 Index during the same period.
Despite concerns about Apple’s valuation outpacing historical norms, I remain steadfast in my belief that the company is poised for further advancement, possibly reaching heights yet unseen.
The Apple Stock Epiphany
Recently, Apple stock achieved record highs following a bullish note from Morgan Stanley (MS). The market cap of AAPL surged above $3.5 trillion, reclaiming its coveted $3 trillion market cap status and reasserting its dominance as the world’s largest company. Despite briefly losing this title to Microsoft (MSFT) and Nvidia (NVDA), Apple now sits at the forefront, maintaining its momentum.
Throughout the year, Apple navigated a rollercoaster of analyst sentiments. From facing unexpected downgrades by three brokerages in an unusual trend at the start of the year, to now basking in renewed positive outlook largely driven by the promise of Apple’s artificial intelligence (AI) integration.
With a series of AI advancements announced at the Worldwide Developer Conference (WWDC) in June, Apple’s stock initially received a lukewarm response from the market, only to surge in the following days as the news settled in.
The Foreseeable Future for AAPL
Currently, over 73% of analysts covering Apple provide a “Strong Buy” or “Moderate Buy” recommendation, an increase from the 66% recorded three months ago. Price targets for the Cupertino-based tech giant have seen a gradual uptick, with the mean target price now at $219.89, although trailing the current stock price. Notably, Loop Capital’s ambitious $300 target signifies a potential 28% surge from Monday’s closing prices.
Formerly holding the Street-high target of $275 for AAPL, Dan Ives of Wedbush Securities believes Apple will exit their slump in China and anticipates growth from the September quarter onwards, especially with the expected launch of the AI-powered iPhone 16 in September. The advent of “Apple Intelligence” is predicted to inject new life into iPhone demand, potentially kickstarting a lucrative upgrade cycle.
Emphasizing the prospects of a “golden upgrade cycle” for iPhones, Ives envisions the integration of AI technology unleashing monetization opportunities across Apple’s services and hardware sectors, adding substantial value per share.
The Future Trajectory of Apple’s Rally
Despite concerns surrounding Apple’s valuation metrics, including a soaring next-12-month price-to-earnings (PE) ratio of 33.5x, significantly higher than its historical average, I argue that Apple’s current valuation should be contextualized. With tech stocks trading at a premium and Apple’s emerging status as an AI industry leader, a rerating of the company is underway.
Past reratings have elevated Apple’s standing, spotlighting its evolution from a mere gadget manufacturer to a software powerhouse. Anticipated sales of AI-enabled gadgets are projected to bolster the company’s margins, compensating for sluggish iPhone sales in recent quarters.
As iPhone users show interest in upgrading to the upcoming, AI-infused iPhone 16, and forecasts hint at a prolonged iPhone upgrade cycle triggered by the aging user base and advanced features, Apple’s potential for growth remains undiminished, especially with a surge in December quarter iPhone sales.
