Apple Stock’s 12.4% Upside Potential: The AI-Driven Growth Story You Need to Know

Stocks to buy

Apple Inc (NASDAQ:AAPL) stock has slightly increased by 0.45% YoY, which is not a significant growth. Apple has to face rising competition in the Chinese market with other notable competitors like Xiaomi and Huawei. However, the company released OpenELM, which is a significant step in developing and integrating AI models into its devices.

This new AI model could be integrated into new iOS and iPhone products introduced this fall. Apple’s expansion into the artificial intelligence industry holds a lot of optimism for the company’s growth. I believe Apple is a moderate buy for now, with a potential upside of 12.4%. 

Catalysts for AAPL Stock

One catalyst for Apple’s growth is integrating artificial intelligence into its products. In April 2024, the company introduced its new OpenELM, a large language model designed to run effectively on electronic devices like tablets or phones.

The primary goal of OpenELM is to deploy AI features into its devices, improving the Siris version and enhancing user experience and privacy. The new AI feature, driven by on-device processing, will probably lead to strong growth for the company. 

Apple has made this an open resource by providing access to models trained to the public. This encourages collaboration and allows developers in the community to improve and customize the model to their specific needs.

Moreover, Apple discussed with OpenAI and Google about integrating AI into the next-generation iPhone this fall.

Apple’s CEO, Tim Cook, stated that the company is integrating AI into its products, with more details possibly coming soon with the launch of iOS 18 and iPhone 16.

I believe those new features on the next product lines of Apple could boost the demand for the next iPhone series in the fall, accelerating the company’s revenue stream in 2024. 

Apple is behind the AI competition compared to competitors like Samsung and Huawei. Samsung has actively incorporated AI into its product portfolio, branding its latest flagship as “Galaxy AI.”

Huawei has integrated advanced AI models into its devices, like the P30 Pro, designed to enhance customers’ experiences with sensor technology for nighttime photography. Partnering with AI industry giants like Google’s Gemini and OpenAI could bridge the gap between Apple and its market rivals. 

Valuation 

Apple experienced an increase of 33.3% for FY2021 and 7.8% for FY2022. However, there is a slight decrease of 2.8% in its revenue for FY2023. This could be because of the lower sales of the iPhone 15 in China.

The revenue could increase by around 4.5% because of the increased sales of Vision Pro and new products with possibly AI integration this fall. Apple has maintained a solid operating income and cash flow throughout the years.

This indicates that the company has good financial health and efficient management. The operating income margins will be around 30% for FY2024 and increase to an average of 35% in the future.  

Apple’s WACC is calculated to be 9.1%, based on the cost of equity being 9.21%, the cost of debt being 5.09%, and the beta being 0.99. I chose a low beta because the stock’s volatility is close to the market.

The equity value divided by the share outstanding of 15 billion gives me the equity value per share, which equals $190.29, a 12.4% upside from the company’s current price of $169.30. 

Risk 

One risk that Apple faces is losing market share in China. In Q1 2024, the company experienced a 19% decrease in the sale of iPhones in China.

This is mainly because of the rising competition in the Chinese market with other notable Chinese companies like Huawei or Xiaomi.

The reason behind this is the innovation and development of Chinese companies in integrating AI technologies into their new products.

However, if Apple can justify its innovation and competitive edge from new product lines, it could enhance its market position and support long-term growth. 

The Bottom Line on AAPL Stock

Apple constantly develops and innovates its products to meet customer demands and expectations. Although the company encounters significant competition and loses market shares, specifically in China, Apple still warrants a moderate buy.

This is because Apple’s new expansion into the AI industry and the integration into its product lives could be significant, escalating the company’s prospects and gaining customers’ demand.

The stock is forecast to be $190.29, a potential 12.4% upside from its current price of $169.30. 

On the date of publication, Michael Que 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.

The researchers contributing to this article did not hold (either directly or indirectly) any positions in the securities mentioned in this article.

Michael Que is a financial writer with extensive experience in the technology industry, with his work featured on Seeking Alpha, Benzinga and MSN Money. He is the owner of Que Capital, a research firm that combines fundamental analysis with ESG factors to pick the best sustainable long-term investments.

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