Apple's (NASDAQ: AAPL) stock recently received a pair of price target hikes. An analyst at Piper Sandler raised its target to $225 per share from $190, while an analyst at Needham took a more aggressive view and raised the target to $260.
Price target hikes and Apple's growth prospects
The Needham analyst likes Apple's $110 billion stock buyback plan and believes it supports the share price. Meanwhile, the Piper Sandler analyst argues Apple's stock is riding a wave of optimism over the possibility of a bounce back in growth in iPhone sales in China, and the potential for artificial intelligence (AI) applications that could lead to an upgrade cycle in iPhones.
Why the upgrade cycle matters to Apple
Apple's revenue mix is changing, with its higher-margin services revenue (roughly double the gross margin of its product revenue gross margin of around 37%) representing 26.3% of revenue in the most recent quarter compared to 17.8% in 2019. Its service revenue growth is a function of growing subscriptions within its installed base of devices, which number more than 2.2 billion.
While the shift to services revenue will improve margins and cash flow via the long-term stream of income from subscribers, it's still critical that Apple can generate product sales growth by driving periodic upgrade cycles with innovative products. That's where the excitement around AI comes in and why the market recently got so excited about Apple stock.
Image source: Getty Images.
CEO Tim Cook thinks "AI, generative AI, and AI are big opportunities for us across our products." This opportunity can lead to a new cycle of product sales growth at a time when Apple is delivering on its services growth and margin expansion plans.
The Piper Sandler analyst has a point when referencing the recent stock run-up that reflects optimism over AI. Much of it appears to be in the price of the stock already. Apple still must contend with waning consumer spending at relatively high interest rates. Still, trading on 38 times Wall Street analyst estimates for 2024, Apple looks fully valued right now.
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 $780,654!*
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*.
*Stock Advisor returns as of July 8, 2024
Lee Samaha 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.
