I’ll be the first to say I’ve been somewhat bearish on Apple (NASDAQ:AAPL) stock and its current valuation. Indeed, as a consumer products company, this is a stock that certainly looks like its valuation may be getting ahead of itself. That’s doubly true if we’re headed into a recession.
That said, a soft landing is clearly the base case the market is pricing in right now. And Apple has recently announced a series of unique AI integrations, merging generative AI with the personal context. The company hopes to emphasize privacy and security in aiding users’ essential tasks.
Recently announced its quarterly earnings on May 2, Apple surpassed analyst forecasts. What really caught investors’ attention, though, was Apple’s plan to repurchase an additional $110 billion of its stock, marking the largest buyback in U.S. history and exceeding its previous record set in May 2018.
Since then, Apple has started six buyback programs totaling $555 billion. This move has led analysts to consider Apple as a value stock prioritizing shareholder returns over expansive growth.
Despite generating substantial cash flow, Apple aims to deploy its excess cash through these buybacks, which have historically delivered strong returns to investors.
AI Surge
Anticipation around the company’s AI developments led to AAPL stock soaring 7% on June 11, hitting a record high in 2024 following the unveiling of its AI platform, Apple Intelligence.
The stock dipped slightly in premarket trading following this announcement, but rebounded after a drop during June 10’s WWDC conference, marking its strongest single-day gain since November 2022, bolstered by positive analyst reactions.
D.A. Davidson managing director Gil Luria praised Apple’s new AI integration as groundbreaking, foreseeing it to revolutionize daily life.
After the announcement, Luria upgraded Apple to Buy, setting a new price target at $230 from $200. Apple introduced “Apple Intelligence” on June 10, an AI platform to be integrated across its hardware and software, including the iPhone, Mac, and other products starting this fall.
Apple introduced updates to Siri, enhancing its ability to locate addresses in messages and retrieve photos from the device’s library using voice commands.
Additionally, Apple rolled out software updates for iPhones, watches, and computers.
JPMorgan senior analyst Samik Chatterjee highlighted the significance of these updates, noting they contribute to a compelling case for customers to upgrade their devices over the next few years based on consumer survey data from previous iPhone launches.
Apple Partnering with Meta
Apple also recently reportedly discussed integrating Meta Platform’s (NASDAQ:META) generative AI into its new Apple Intelligence, leveraging iPhone distribution akin to App Store software exposure.
Apple’s negotiations with AI partners reportedly involved revenue-sharing from premium service subscriptions via its vast distribution network, diverging from upfront payment requests.
This approach aims to reduce reliance on OpenAI but raises questions about the openness of Apple’s new AI platform, known for its tightly controlled ecosystem.
After forming a bullish golden cross as Apple shares hit a record high, recent retracement with AAPL stock could suggest potential weakness. I think investors may want to watch the $197 support level closely.
AAPL Stock Looks Like a Buy
In the early innings of its AI development, Apple faces challenges, particularly in navigating China’s stringent regulatory landscape. Despite these hurdles, Apple aims to leverage its technology globally, necessitating strategic adjustments for the Chinese market.
Several key factors have fueled the stock’s recent upturn, notably the introduction of AI upgrades in the latest iPhone models.
These enhancements are poised to boost demand and drive sales as users of older models upgrade. This signals a potential new iPhone sales super cycle and could further elevate Apple’s already robust gross margins.
Given the iPhone’s central role in Apple’s success, increased demand positions the company favorably for investors considering entry.
On the date of publication, Chris MacDonald did not hold (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.
