The stock of Apple (NASDAQ: AAPL) is up 22% year to date in 2024, but Morgan Stanley analyst Erik Woodring weighed in this week by maintaining an overweight (buy) rating on the shares with a price target of $273. This implies upside of 15% over the current $237 share price.
Woodring still sees artificial intelligence (AI) becoming a key catalyst for iPhone sales over the next year. But it's uncertain how much an increase in sales will affect the stock's performance given its premium valuation.
Will Apple Intelligence boost iPhone sales?
A recent survey by the technology review website CNET found that longer battery life is a bigger priority for Apple users than AI features. If the survey's results are accurate, it could mean Apple Intelligence won't drive the level of iPhone upgrades to justify buying the shares at these highs.
Of course, AI models are getting better almost every month right now, including OpenAI's ChatGPT, which is integrated with Apple Intelligence. These survey results reflect the state of AI now in 2024, but as AI models improve, users may have a different view of its value in another few years.
As for the stock, it all boils down to how much incentive AI will provide to drive users to buy new devices, and no one knows the answer to that. It's a wait-and-see game right now.
Sales of iPhone were up less than 1% in fiscal 2024 (which ended in September). The consensus Wall Street estimate projects Apple's sales to increase by 6% in fiscal 2025, with earnings expected to grow 21%. However, over the long term, earnings are expected to grow 10% per year, which is not enough to support a high price-to-earnings ratio of 38.
Artificial intelligence may drive stronger growth in fiscal 2025, but the stock's high P/E shows that investors may already be pricing this into the shares. At this point, I would wait for either a pullback in the shares or confirmation that AI is driving double-digit increases in iPhone sales before investing in Apple.
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John Ballard 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.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
