Despite recent headwinds weighing on Apple stock, the company remains a titan in the tech industry. Its recent earnings have provided investors with some positive results, driving the stock higher. Additionally, the unveiling of the M4 chip used in the latest iPad Pro hints at Apple’s (NASDAQ:) unwavering commitment to hardware innovation. Bernstein has now chimed in, highlighting what he believes is Apple’s bullish case.
Apple shares rise after earnings
Apple’s share price rose in response to its recent earnings report, posting a strong gain of nearly 6%.
The iPhone maker reported second-quarter earnings of $1.53, $0.03 better than analysts’ estimates of $1.50, and revenue for the quarter was $90.8 billion, above the consensus estimate of $90.32 billion.
Additionally, Apple announced a cash dividend of $0.25 per share of the company’s common stock, an increase of 4%.
In Greater China, which has been the focus of investor and analyst attention in recent months, Apple’s sales fell 8% to $16.37 billion amid growing competition from smartphone rivals in the country. However, it was not as bad as analysts’ forecasts of $15.25 billion.
In a note after the earnings call, Bernstein analysts said: “Apple executives are positive, repeatedly highlighting their AI capabilities and making exciting upcoming announcements.”
What’s the bullish outlook for Apple stock?
Now Bernstein has taken a closer look at the potential growth in Apple stock.
An investment research firm focusing on China said that while the country could potentially see some stockpiling in the second quarter, it is not concerned about it.
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“AAPL was driven by above-normal seasonality in the third quarter with solid GMs, which it did not need to do and would not have done so if global inventories had been inflated. We believe Chinese businesses are under cyclical pressure rather than structurally changing,” Bernstein wrote.
Meanwhile, the company expects more AI announcements from Apple to happen in September during the iPhone 16 launch than at the WWDC event. However, they consider WWDC to be “directionally positive as well.”
“We see three main ways for Apple to monetize AI: 1) offer on-device AI capabilities to speed up the update cycle; 2) AI search advertising revenues, assuming that online AI search is incremental to traditional search; 3) increased spending in the App Store if AI drives the emergence of new AI-based applications,” Bernstein analysts add.
As for potential regulatory hurdles, Bernstein is “relatively optimistic,” saying that while the DOJ’s Google (NASDAQ:) case is the most pressing and poses a risk for headlines, “even an unfavorable decision would likely result in selection screening when Google pays AAPL at a level similar to today.”
Overall, Bernstein said Apple’s FY25 EPS forecast would be $8 per share, and Apple would move the rating to the top of its valuation range, pointing to a $235 share price. They add that the optimistic case is that the replacement cycle and AI tailwinds could fuel a strong iPhone 16 cycle and that Apple’s long-term valuation is “reasonable given its ultra-high earnings/cash flow quality, strong moat and history of sustainable growth.” “
The firm maintained an “outperform” rating and $195 price target on the stock, citing a positive risk/reward profile.
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