⌛ Did you miss ProPicks’ 13% gains in May? Subscribe now & catch June’s top AI-picked stocks early.Unlock Stocks

Apple stock sentiment improving says JPMorgan as AI could help re-rating

Published 04/11/2024, 07:48 PM
© Reuters.
AAPL
-

Despite the broader market's rally, Apple's (NASDAQ:AAPL) stock has faced challenges this year, with its year-to-date performance reflecting a downward trend at -10.35% year-to-date.

This decline in Apple's stock value has occurred even as the S&P 500 experienced a notable uptick. However, amidst this backdrop, there is a glimmer of optimism as JPMorgan recently indicated that the sentiment surrounding Apple's stock is showing signs of improvement.

Moreover, JPMorgan underscored the potential of AI, a game-changing technology, to re-rate Apple's stock, potentially leading to a significant turnaround.

JPMorgan says Apple stock sentiment is on the up

JPMorgan analysts said in a note Thursday that sentiment towards Apple is improving with hedge fund investors despite deteriorating data points.

“Contrary to the deterioration of fundamentals relative to both hardware demand as well as outlook for services growth, the interest in AAPL shares have improved from the broader group of investors who have otherwise been averse to the premium valuation multiple despite one of the lowest growth outlooks relative to the other mega cap tech stocks,” wrote the investment bank.

The bank explained the drivers of the increase in enthusiasm for Apple are the fact that the valuation premium is moderating following the Apple stock decline, and the artificial intelligence-led iPhone upgrade cycle.

“The increasing appetite from investors has largely been driven by interest in participating in the cyclical upsides associated with the AI on-device led upgrade cycle, with investors taking the cue from the 5G led upgrade cycle,” added JPMorgan.

Investors may be wrong on Apple stock again

The bank highlighted various Apple headwinds, such as iPhone sales data points, including demand in China, the cancellation of the future opportunity around Automotive revenues, and the downside risks to Services on account of higher regulatory scrutiny in multiple geographies.

However, they state that at the same time, hedge funds are eyeing the headwinds to create more tactical entry points ahead of the AI upgrade cycle.

The firm sees some similarities with the 5G cycle. For example, hardware adoption potentially running ahead of the consumer understanding of the use cases and is driven more by expectations of robust use cases, “even though the asked questions today are about the AI use cases.” In addition, the replacement cycle being temporarily accelerated for two to three years on account of the upgrade cycle and the lack of backward compatibility. For example, 5G capability could not be activated on prior generation 4G phones, while JPMorgan expects the absence of AI feature availability on older phones.

Elsewhere, BofA said in a recent note that investors have significantly underestimated Apple’s gross margins.

In its analysis, the bank said the Street was modeling FY23 gross margins for Apple at
39% but in reality, Apple printed 44% gross margins, “significantly exceeding (500bps)
original expectations.”

“In our opinion, the Street continues to underestimate the long-term gross margin potential for Apple across both products and Services yet again, where we see about 180bps of Product gross margin upside and about 150bps of Services margins upside over the next few years,” they wrote.

Latest comments

Loading next article…
Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.