Is Apple Stock a Buy?
After enduring a slow start to the year and multiple rounds of layoffs, things are starting to shape up for Apple (NASDAQ: AAPL). The Cupertino-based company is set to roll out new artificial intelligence-powered (AI) services in the coming months. Some analysts believe AI will help the company reclaim its top position in the technology sector.
For much of 2024, Apple shares have underperformed those of its nearest tech competitors, including Alphabet and Microsoft. In April, Apple stock was down 14% for the year, underperforming the S&P 500's return of 5% at the time.
Falling sales in key markets like China drove the decline. On top of this, Apple reported second-quarter revenue of $90.8 billion, a 4% year-over-year decline, further weighing on the stock.
However, Apple has rebounded and is up over 30% since April. And there could be more to come after the company announced new product line-ups centered around AI. Is this the winning ingredient investors want?
The lead-up to Apple Intelligence
Although Apple is a leader in digital innovation, it has always been late to the party. However, taking things slowly has enabled the company to develop products that are more appealing to the market.
For example, years ago, Apple wasn't the first company to enter the smartphone scene, but the iPhone quickly won over consumers, and now, as of Q1 2024, 28% of devices globally were using iOS.
Similarly, while contenders such as Meta Platforms and Nvidia have been at the forefront of the AI boom, Apple has remained silent about its forward-looking AI strategy until recently.
During Apple's Worldwide Developers Conference (WWDC) in June, CEO Tim Cook introduced Apple Intelligence, a native, AI-powered, on-device operating system that will use generative AI features and integrations from OpenAI's ChatGPT.
Apple Intelligence will be built into iOS 18, iPadOS 18, and macOS Sequoia and will include features such as text composition and generative image features while prioritizing user functionality and notifications. However, AI will not be included in the initial launch of iOS 18 and iPadOS 18 in September.
And there's another catch beyond the delayed release. Apple Intelligence features will be limited to newer devices such as the iPhone 15 Pro and 15 Pro Max, iPads, and Mac devices with chips M1 through M4.
The company also faces regulatory hurdles. The Cyberspace Administration of China (CAC), a government internet watchdog, has implemented guidelines for foreign companies seeking approval for generative AI deployment in China.
To find a solution, Apple is looking to partner with a China-based company to help develop its Apple Intelligence software. This comes on the heels of Cook saying in a conference call with investors that sales in Greater China had declined 8% in Q1, while smartphone sales fell 19% during the same period.
Bullish long-term sentiment
The announcement of Apple Intelligence has helped Apple stock gain momentum. In the days after WWDC on June 10, Apple shares gained 5%. Apple is now up by about 14% year to date, compared to Microsoft's gain of 14% and Amazon's jump of 21%.
Having regained some traction, Apple holds a steady position compared to the broader market. The 12-month return on Apple shares currently sits at 12%, with the S&P 500 at 20% and the Nasdaq Composite Index (IXIC) up by approximately 22%.
Wall Street has also changed its tone. Roughly 32 out of 47 analysts surveyed by FactSet had given the stock a Buy rating, 12 adjusted their position to a Hold, and three called for a Sell rating.
Analysts expect an adjusted bottom-line delivery of $1.34 per share, up 6% year over year, on revenue of $84.2 billion in Q3 2024, representing a 3% increase from the same period last year.
There is reason to believe that Apple will succeed in AI innovation. The company is not entirely new to the AI game and has long been a pioneer in areas such as voice recognition (Siri) and facial recognition. Apple has the potential to dominate AI, akin to the success it achieved with the iPhone.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Meta Platforms, Microsoft, and Nvidia. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy. Jacob Wolinsky has no positions in any of the stocks mentioned.
Is Apple Stock a Buy? was originally published by The Motley Fool