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Apple Stock: Near-Term Concerns Could Limit the Upside Potential
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Apple Stock: Near-Term Concerns Could Limit the Upside Potential

Story Highlights

Apple stock has underperformed the broader market year-to-date and Wall Street’s average price target suggests that near-term pressures could limit the upside potential. 

Apple (NASDAQ:AAPL) stock has underperformed the broader market so far this year and is down 1.5%  compared to the 11.2% rise in the S&P 500 (SPX). Concerns about the declining iPhone sales, subdued demand in China, growing competition, regulatory woes, and the lack of any game-changing innovation have weighed on the stock. Moreover, investors are worried about Apple lagging other tech giants in the artificial intelligence (AI) race. Wall Street’s average price target indicates limited upside potential for AAPL stock from the current levels due to these near-term concerns.

Recent Performance

Apple’s overall sales in the second quarter of Fiscal 2024 (ended March 30, 2024) declined by over 4% to $90.8 billion, while earnings per share (EPS) increased by 0.66% to $1.53. Both revenue and earnings exceeded analysts’ expectations. While Apple’s Services business continued its strong growth streak, lower iPhone sales weighed on the company’s performance.

Notably, iPhone sales decline 10% to about $46 billion, reflecting weak demand for the latest models. Also, Apple’s sales from China fell 8% due to lackluster demand for the company’s products amid growing competition from the domestic players.

While Apple expects its overall sales in Q3 FY24 to grow in the low-single digits, concerns about iPhone demand remain. Moreover, investors are worried about the company falling behind other tech giants in capitalizing on the generative AI boom.

Analysts’ Opinions on AAPL Stock

On May 9, Wedbush analyst Daniel Ives reiterated a Buy rating with a price target of $250. The analyst believes that as more apps and tasks incorporate generative AI, Apple will have the opportunity to monetize a significant revenue base in the years ahead, backed by its huge installed base of 2.2 billion devices.

Ives expects Apple to reveal additional details about its reported partnership with ChatGPT-creator OpenAI at the annual Worldwide Developers Conference (WWDC) to be held in June.

Recently, Bloomberg reported that Apple is placing some of its high-end chips in cloud computing servers meant to process the most advanced AI tasks that will be offered via its devices. Ives thinks that the use of advanced in-house chips in AI gives Apple greater control over its AI path. He added that the company has made much progress in its own proprietary AI large language models (LLMs) and technology than Wall Street expects.

While Ives is upbeat about Apple’s prospects, D.A. Davidson analyst Gil Luria reiterated a Hold rating on AAPL stock with a price target of $200. Luria thinks that iPhone’s declining sales suggest that there is a need for innovative features to induce a notable upgrade cycle. The analyst added that despite the iPhone’s dominant position in many key markets, a lack of innovation could impact its growth potential.

Is Apple a Buy, Hold, or Sell?

Wall Street has a Moderate Buy consensus rating on Apple stock based on 20 Buys, 12 Holds, and one Sell. The average AAPL stock price target of $203.93 implies 7.4% upside potential.

Conclusion

Despite Apple’s better-than-expected Fiscal second-quarter results, investors and several analysts are concerned about the lower iPhone sales and the other headwinds mentioned above. Wall Street is cautiously optimistic about the stock and the average price target indicates a modest upside potential due to the near-term pressures. Nonetheless, any favorable updates about Apple’s generative AI path at WWDC could drive the stock higher.  

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