Apple (NASDAQ: AAPL) investors endured a torrid time in the first four months of 2024 as shares of the tech giant fell 8%, while the Nasdaq-100 Technology Sector index gained 6% over the same time.
The company’s stagnant growth and a U.S. Department of Justice (DOJ) lawsuit explain why investor confidence in Apple stock was low during this time. The good news is that the company is finally receiving some love from the stock market. Shares of the company were up more than 12% in May, driven by a solid set of results for the second quarter of fiscal 2024, which were released May 2.
Let’s look at the reasons Apple regained its mojo and determine whether investors should consider buying this tech stock in anticipation of further gains.
Things are about to get better for Apple
Apple’s revenue in the second quarter of fiscal 2024 was down 4% from the year-ago period to $90.8 billion, driven mainly by a drop in iPhone sales. The company sold $46 billion worth of iPhones in the quarter that ended in March, down from $51.3 billion in the same period last year.
Apple’s bottom line increased by a penny to $1.53 per share. The company’s record revenue of $23.9 billion from the services business, which grew 14% year over year, helped support its bottom line.
However, Apple beat Wall Street’s expectations of $1.50 per share in earnings on $90 billion in revenue. What’s more, the company expects to return to growth in the current quarter, with its revenue forecasted to increase in the low single digits on a year-over-year basis. Apple is forecasting double-digit growth in the services business and iPad revenue.
Given that the company gets half of its revenue from selling iPhones, it won’t be surprising to see sales of Apple’s smartphones increasing once again. After all, the global smartphone market reported 7.8% year-over-year growth in the first quarter of 2024, following a 3% decline last year, according to IDC. The market research firm is forecasting a 2.8% increase in smartphone sales this year, but there is a good chance the market could clock stronger growth thanks to AI-enabled smartphones.
IDC estimates that 170 million AI smartphones could be shipped in 2024, accounting for 15% of the overall market. According to Counterpoint Research, that number is expected to head higher impressively in the future, with shipments forecasted to jump 4x in the next four years. More importantly, Counterpoint is expecting Apple to become the leading player in the AI smartphone market in 2025.
A recent report from Apple Insider suggests the smartphone giant is set to dive into the AI smartphone market this year with iOS 18. The company’s next-generation software is expected to help users create transcripts from voice memos and the Notes application. Meanwhile, the Messages app and Safari browser are expected to get an AI-powered summarization feature that will give users a summary of the contents of a webpage or get a gist of important parts of messages.
Other sources suggest Apple is set to bring a comprehensive suite of AI features to its devices, such as an advanced iteration of Siri on the Watch, generating emojis automatically based on what users are typing, and a potential chatbot. Considering Apple is the second-largest player in the smartphone market, with a share of just over 17%, the company is in a nice position to capitalize on the growth of AI smartphones.
As such, there is a good chance its iPhone revenue could start increasing again once it starts integrating more AI-focused features.
Is the stock worth buying now?
Wedbush Securities estimates that Apple’s upcoming AI-enabled smartphone could drive a solid upgrade cycle. The firm also forecasts that AI features would create an additional monetization opportunity for the company’s services business. As a result, Wedbush upgraded its price target on Apple stock to $275 from $250, which points toward a jump of 45% from current levels.
The stock currently has a median 12-month price target of $202, as per 49 analysts covering it, which points toward a 6% upside from current levels. However, analysts are raising their growth expectations from Apple following its latest report. Over the last 30 days, 28 analysts have boosted their earnings expectations from Apple for the current fiscal year, while 26 have raised the same for the next fiscal year.
This is evident from the chart below:
This potential improvement in Apple’s earnings growth could be rewarded with more gains. That’s why investors can consider buying this tech stock before it starts soaring. Apple is available at 29 times trailing earnings right now, representing a discount to the Nasdaq-100’s trailing earnings multiple of 31 (using the index as a proxy for tech stocks).
Should you invest $1,000 in Apple right now?
Before you buy stock in Apple, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Apple wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Consider when Nvidia made this list on April 15, 2005… if you invested $1,000 at the time of our recommendation, you’d have $671,728!*
Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of S&P 500 since 2002*.
See the 10 stocks »
*Stock Advisor returns as of May 28, 2024
Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple. The Motley Fool has a disclosure policy.
Is Apple Stock a Buy Now? was originally published by The Motley Fool
From: Yahoo.com
Financial News
