Analysts reboot Apple stock price target on AI, buyback

Analyst: Apple holds ‘the only keys to the castle’

And while the doubters appear to be legion, Wedbush analyst Dan Ives is a believer.

Ives, who has an outperform rating and a $275 price target on Apple shares, said in a July 8 note that the company could be on track to reach a $4 trillion market capitalization with the AI iPhone 16 upgrade cycle coming.

Related: Analyst reviews Apple stock price target on iPhone sales

“We believe the Street is now starting to slowly recognize that with Apple Intelligence on the doorstep, in essence, Cupertino will be the gatekeepers of the consumer AI Revolution,” he said in a research note.

Ives said that developers and other technology stalwarts will likely need to integrate their AI models and technology into Apple Intelligence in the future, “as Apple and its golden iOS ecosystem hold the only keys to the castle of 2.2 billion iOS devices worldwide and 1.5 billion iPhones.”

“We expect developers over the next 6 to 12 months will build hundreds of generative AI-driven apps that will be key ingredients in the recipe for success for Apple,” Ives said, “as its technology stack creates the core building blocks of the consumer AI tidal wave we see coming starting with iPhone 16 in mid-September.”

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Apple’s iPhone sales in China fell significantly earlier this year, but Ives said, “June will be the last negative growth quarter for China with a growth turnaround beginning in the September quarter.”

“China remains the linchpin of growth for Apple, and now this key region is set to see growth once again, starting with iPhone 16,” he said.

Speaking of the iPhone 16, Apple is reportedly planning to ship at least 90 million iPhone 16s in the latter half of this year, 10% above prior launches, according to Bloomberg. The company counts on artificial intelligence services to drive demand after a rocky 2023.

Apple told suppliers and partners that it’s targeting about 10% growth in shipments of new iPhones compared with their predecessors after shipping about 81 million iPhone 15s in the second half of 2023, Bloomberg reported, citing a person familiar with the matter.

The report said the company has grown confident that the addition of some Apple Intelligence features to the iPhone 16 will help boost demand when the model goes on sale late this year.

AI could be ‘needle mover for upgrades,’ analyst says

Investors were enthusiastic when Apple announced a $110 billion stock buyback back in May. It was the largest buyback authorization in the company’s history, topping a previous $100 billion buyback in 2018.

“For the last couple of years, we were doing $90 billion, now we’re doing $110 billion,” Luca Maestri, chief financial officer, said during the earnings call “So, let’s get there first. It’s going to take a while still. And then when we are there, we’re going to reassess and see what is the optimal capital structure for the company at that point in time.”

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“Obviously, there’s going to be a number of considerations that we will need to look at when we get there,” he added.

Needham analyst Laura Martin cited the buyback when she raised the firm’s price target on Apple to $260 from $220 and kept a buy rating on the shares.

The analyst said the decision to buy back $110 billion in stock comes at a time when other large tech names are spending $50 billion to $100 billion on Gen-AI infrastructure.

However, she also warned that, over a three-year timeframe, Apple’s single-digit revenue growth “feels increasingly at risk.”

Apple, which is scheduled to report third-quarter earnings on Aug. 1, should build an advertising business. Ad margins are typically 70%- 80%, which would drive the company’s margin expansion without raising device prices, Martin said.

Meanwhile, Piper Sandler analyst Matt Farrell referred to the iPhone and China in a research note. He boosted the firm’s price target on Apple to $225 from $190 and kept a neutral rating on the shares following a change in analysts.

Farrell said that since early April, Apple shares have been up over 30%, driven by excitement about Apple Intelligence and a potential bounce-back in iPhone shipments in China.

He added that the excitement is warranted, as artificial intelligence “could be a needle mover for upgrades.”

In addition, a return to growth in iPhone sales in China could create a tailwind in the second half, the analyst added.

However, given the current valuation and the growing risk of a consumer spending headwind, Farrell said that he feels like “a lot of good news is already priced into the stock.”

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