Following the announcements of launching AI-enhanced iPhones this autumn season, Apple (NASDAQ:AAPL) is ready to dominate the tech sector once again. Investor interest remains elevated in the iPhone maker, as revenue is expected to top the charts in the coming quarters. With the company’s newest iPhone 16 and Apple’s “Apple Intelligence” strategy likely to spur future growth, there’s plenty for investors in the world’s largest consumer products giant to like.
Indeed, since unveiling its AI strategy in June, Apple stock has risen 10%. Analysts remain very bullish on AAPL stock, and we’ll get into where some of the price targets suggest the tech giant could go from here.
Of course, not all investors are 100% sold on Apple’s long-term growth prospects, and many believe the company’s valuation at 35-times earnings could be pushing it. With that said, let’s dive into what the company’s future catalysts and potential headwinds could signal in terms of where this Magnificent 7 giant could be headed.
Key Points About This Article:
- Apple is a consumer products giant with an absolutely incredible brand, a loyal customer base, and pricing power which is very hard to find in this space.
- The company’s upcoming iPhone 16 release and AI ambitions may be offset by valuation concerns – let’s dive into what to make of this stock at current levels.
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iPhone 16 Will Be a Key Growth Driver
Apple’s iPhone 16 is expected to be a big hit among consumers, leading to what could be yet another iPhone refresh cycle investors have been waiting for. The company’s latest iPhone updates, including the iPhone 15 Pro’s titanium shell and the iPhone 14 Pro’s Dynamic Island, have resulted in what many consumers may realize are only minor changes. However, the iPhone 16 lineup, including the 16, 16 Plus, 16 Pro, and 16 Pro Max, will certainly bring forward a number of new features that many may finally feel warrants an upgrade.
In particular, Apple’s new AI suite, Apple Intelligence, will be a key addition across all iPhone 16 models. While this feature will also be compatible with iPhone 15 Pro versions. Non-Pro models will gain the Action button, but its value may be diminished by iOS 18’s customizable Control Center. The Pro versions are expected to sport a new DSLR-like camera control button and slightly larger screens. The Pro lineup will feature refreshed colors, including the return of rose gold, and all models will include the A18 chip with 8GB of memory.
Additionally, Apple is working on a smaller Mac mini, changes to the iOS 18 Photos app, and a shift to a plastic version of the SE watch.
These product upgrades, as well as Apple’s new iPhone SE, could sell well if priced around $500. There’s a reason why analysts are expecting both the 16 and 17 models to generate newfound excitement around this product line, and potentially lead to the next growth cycle for the company.
Analyst Optimism Around the Upcoming Refresh Cycle
Wedbush analysts revised their iPhone 16 shipment forecasts higher, predicting at least 90 million units will be sold, largely due to robust demand from Asia. These analysts, including famed Apple bull Dan Ives, anticipate that this upgrade cycle could spark a significant growth resurgence for Apple and allow the company to move past competition struggles and pricing pressures in China. Wedbush noted that recent checks have increased the firm’s confidence in Apple’s strong upside potential moving forward.
I think these forecasts are certainly bullish, and we’ll have to see if Apple can hit the mark. Whether it’s the iPhone 16 or 17 that ultimately drives the refresh cycle moving forward, it’s going to be key for investors to see a resurgence in demand coming from the Chinese market. Indeed, China’s economy has been weakening, so we’ll have to see if demand turns out to be as robust as analysts think. But until the company’s earnings report, investors will certainly continue to speculate. For now, most of the momentum and expectations appear to be to the upside.
Strong Fundamentals
Apple reported Q2 2024 results in early August, surpassing Wall Street estimates. The company $1.40 in earnings per share and $85.78 billion in revenue on strong sales from most product categories. Overall sales increased 5% year-over-year, and while most product categories performed well, MacBook sales slightly missed estimates at $7.01 billion. The iPad division saw significant growth, with a 24% increase to $7.16 billion, boosted by new models. Apple’s services revenue also rose 14% to $24.21 billion.
Those bullish on a new iPhone refresh cycle are taking notice of what these upcoming releases will mean for earnings, given that iPhone sales still make up the most substantial portion of Apple’s revenue. With the company expanding into developing markets like Chile, Indonesia, Saudi Arabia, and India, Apple is increasing iPhone production in India and is likely to continue investing in this market. This move, including the local production of premium iPhone Pro models, aims to reduce reliance on China and benefit from lower import taxes, potentially saving $35-50 million annually and boosting profitability.
Apple Still Looks Like a Hold
Apple’s outlook is one that certainly appears to be rosy, at least for now. Analysts remain bullish on the company’s product releases, and the potential its next-generation iPhones will bring in terms of growth. Most in the market appear to still view Apple as a relatively safe bet in the technology sector. These views aren’t likely to materially change, at least in the near-term.
Of course, there’s always potential macro risks to consider. Whether it’s a slowing global economy or supply chain issues from moving to a new market, plenty can go wrong. Accordingly, I do think some skepticism with respect to Apple is probably warranted at current levels.
That said, the company’s positive Q4 guidance and robust financials do suggest to me that AAPL stock is at least a hold at current levels. Personally, I’m going to wait on the sidelines to see how the company performs in the coming quarters before rushing to judgement one way or the other.
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