Top Line
Apple investors are likely feeling elated after the iPhone maker's shares had a historic week, but Wall Street forecasts suggest Apple's stock price may not see much gains in the near term amid runaway artificial intelligence fantasies.
Apple's revenue is very strong, but it will likely need more growth than expected. … [+]
Key Facts
First, the good news: Apple shares closed at a weekend high of $212.49 per share, its third-largest weekly gain in the past two years and its second-largest weekly dollar gain per share in the past decade. This comes after the tech company unveiled a generative artificial intelligence product due later this year.
Analysts have responded generally positively, noting the potential for a surge in iPhone sales, but the consensus is that there isn't much upside for Apple shares.
The average price target of 48 analysts tracked by FactSet is $204.89 per share, about 4% lower than Friday's price, and the average price target of nine analysts updated this week is even lower at $201.56, suggesting a 5% downside.
And even Wall Street's most bullish analysts aren't predicting a big surge in Apple's stock, with buy recommendations from Goldman Sachs and Bank of America predicting a 12% and 8% rise in the stock, with price targets of $238 and $230, respectively.
Considering that the S&P 500 has given investors an annualized return of 13% over the past decade, and Apple has returned 26% annually, this doesn't seem all that appealing.
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Main Background
Price targets are not an exact science, as they are often slow to move or reactive to past movements, but they certainly indicate a general belief that Apple stock is pricing in a lot of its potential upside. The most prominent concern for Apple stock is sluggish revenue growth. Consensus forecasts expect the company to report just 1% revenue growth this year from fiscal 2023, and a 2% decline from its all-time high revenue of $394 billion in 2022. While established companies like Apple are expected to report weaker growth than companies in emerging industries like Nvidia, Apple's revenue growth lags behind fellow tech giant Microsoft, which is expected to report 16% revenue growth this fiscal year after growing its business by 7% last year. Apple's net profit of $383 billion and sales of $97 billion in fiscal 2023 surpassed Microsoft's $212 billion and $73 billion, while consensus forecasts call for Microsoft to overtake Apple in profits by 2026 and in sales by 2028. In fact, analysts predict that Nvidia's net profits will surpass Apple's by 2028, a figure that would have seemed far-fetched two years ago, when Nvidia accounted for roughly one-twentieth of Apple's annual profits. Remember, investors are paying for future earnings projections, not past performance.
So why is Apple's stock price rising?
Until Monday, Apple hadn't said much about its generative artificial intelligence plans, as the likes of Microsoft and Google stole the show. This week's spike came as the market focused on the prospect of a major upgrade cycle for the world's 1.5 billion iPhone users. And given the large, loyal user base, it's not hard to dream of even more growth potential for AI in Apple products. This week was “the first of many in Apple's generative AI strategy,” Goldman Sachs analyst Michael Ng declared.
tangent
AI semiconductor chip designer NVIDIA's stock has seen a spectacular rise, putting it on par with Apple in terms of market capitalization, but that alone shouldn't hurt Apple's stock price. But if Microsoft and NVIDIA stock prices continue to outpace Apple's, that could put further downward pressure on Apple's stock as exchange-traded funds that track market-cap-weighted indexes adjust their holdings, LPL Financial strategist George Smith warned in a client note this week. Essentially, if investors want to keep buying lots of NVIDIA, they'll need to get the money from somewhere, which could force them to sell Apple shares periodically.
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