While artificial intelligence may be the new buzzword in tech, Needham analyst Laura Martin believes that the tech giant has an opportunity in advertising. The analyst raised the price target on Apple stock to $260 from $220 and reiterated a Buy rating. Martin’s price target implies an upside potential of 12.7% from current levels.
Martin’s Rationale for the Raised Price Target
The analyst cited the company’s impressive $110 billion share buyback plan while its peers invest heavily in generative AI. However, Martin expressed concern about AAPL’s revenue growth over the long term. The analyst suggests that AAPL should consider building an advertising business, citing the burgeoning global ad spend of $966 billion this year, with mobile ad spending likely to be $500 billion. This addressable market is higher than the consensus estimates of AAPL’s FY24 revenues being less than $400 billion.
The analyst added that AAPL’s foray into advertising could result in its ad margins being in the range of 70% to 80% without the company resorting to price hikes for its products. By Martin’s calculations, selling connected TV ads on AppleTV+ could add 140 basis points to the company’s growth in revenues. Furthermore, if AAPL adds ads to the app store, it could accelerate its revenues even faster.
What Is the Fair Value of Apple?
Analysts remain cautiously optimistic about AAPL stock, with a Moderate Buy consensus rating based on 24 Buys, 10 Holds, and one Sell. Over the past year, AAPL has increased by more than 20%, and the average AAPL price target of $222.64 implies a downside potential of 3.5% from current levels.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
