Savvy investors should buy Apple (NASDAQ:AAPL) stock ahead of the company’s second-quarter financial results scheduled for August 1.
Apple stock has staged a big rally since the company unveiled its artificial intelligence (AI) strategy in June. Since bottoming in mid-April, the company’s share price has risen 30%. It’s been a remarkable recovery after AAPL stock declined sharply during the year’s first quarter on concerns about slumping iPhone sales and declining profit margins.
And now, indications point to Apple’s upcoming Q2 print marking a turnaround for the company’s core consumer electronics business. It could send the stock even higher.
Earnings Test
Apple’s anticipated Q2 financial results will be a big test for both the company and the broader stock market. With Apple’s market capitalization now back above $3 trillion, it regained the title as world’s biggest publicly traded company. Any post-earnings move in its share price is sure to sway the stock market. Early indications are that the Q2 results will be strong and represent a bounce back for Apple.
In particular, iPhone sales are expected to get a boost from India where sales are believed to have grown 33% to reach record levels. India remains an important emerging market for Apple. Growth within India should help to alleviate some of the pressure Apple has experienced in China, where sales have been slowing amid an economic downturn and rising competition.
Bullish Outlook
Analysts see plenty of reasons to be bullish on Apple stock heading into earnings. In recent weeks, Piper Sandler (NYSE:PIPR), Bank of America (NYSE:BAC) and Wedbush have each put out optimistic reports on AAPL stock and raised their targets for its share price. Bank of America cited a 13% increase in Apple’s App Store revenue for the year’s second quarter, while Piper Sandler called the iPhone’s new AI features a “needle mover for upgrades.”
Wedbush has been the most bullish on Apple stock. Claiming that it’s seeing “signs of iPhone stabilization” in China, Wedbush went so far as to forecast that Apple’s market capitalization will reach $4 trillion within 12 months. Among 35 professional analysts who cover Apple, 25 rate the company’s stock a buy while nine analysts give it a hold rating. Currently, only one sell rating is on AAPL stock. The median price target on the shares is 10% higher than current levels.
AI Optimism
Much of the turnaround in sentiment towards Apple stock comes after the company unveiled its AI strategy in June. Called “Apple Intelligence,” the plan calls for a revamped Siri digital assistant and the addition of OpenAI’s ChatGPT technology on future iPhones. Going forward, Siri will be able to interact with messages, emails, calendars and write emails. The entire strategy focuses on consumers rather than enterprise, with company executives calling it “AI for the rest of us.”
Apple hopes that its new AI features will convince its more than one billion users to upgrade to the next generation of iPhones. Apple continues to get half of its annual revenue from iPhone sales, making the device its most important product. Analysts see AI as being a catalyst to drive an upgrade cycle for the iPhone. The new AI features will only be available on the latest iPhones starting with the iPhone 15 Pro as well as future models. This will require consumers to upgrade in order to get the improvements.
Buy Apple Stock
The first few months of this year were difficult for Apple as signs pointed to a slowdown in its signature iPhone device. Much handwringing went on among analysts and investors as confidence in the company was shaken.
What a difference a month can make. After launching its AI strategy, analysts have grown increasingly bullish on the stock. Hopes are growing for an iPhone refresh cycle and sales already look to be improving in key markets. With its Q2 earnings on deck, now is the time to buy Apple stock.
On the date of publication, Joel Baglole did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.
