Apple’s (NASDAQ:AAPL) recent performance from a stock price perspective has certainly been impressive. Apple stock started slow in 2024 but has since surged toward all-time highs, now within 2% of that level. Investors are seeking to adjust their holdings in response to Apple’s recent strength.
My view on Apple stock fluctuates between concern over fundamentals and potential downside in a recession, and bullishness over its user base and product ecosystem. I think the balance of risks right now favor those with a market weighting in this name. Here’s why.
Analysts Getting Bulled-Up on Apple Stock
The AI-driven rally we’ve seen has certainly benefited companies like Apple that are widely expected to announce new AI integrations in the coming weeks and months.
Of course, alongside this rally has come concern that certain richly-valued stocks could be poorly positioned in this current environment. Perhaps that’s a valid criticism of AAPL stock, which trades at roughly 30-times earnings.
That said, several analysts are growing increasingly bullish on Apple. Analysts at Goldman Sachs (NYSE:GS) project continued cash flow growth for Apple, which should speed up for the company in its third quarter.
Deepwater Asset Management’s Gene Munster also has suggested Apple may be a more favorable choice than Nvidia (NASDAQ:NVDA) over the long-run. Munster suggested Apple would offer higher returns due to underestimated AI potential.
While Apple’s AI strategy has faced criticism, bulls anticipate its resurgence, with expectations high for AI plans at WWDC. According to Dan Ives of Wedbush, WWDC holds significant importance as Apple aims to unveil pivotal AI technology.
Ives predicts Apple could rally $30 to $40 per share with its AI ecosystem, setting a $275 price target. Despite trading at 27-times its 2025 EPS estimate, Apple faces scrutiny with a 9.60% growth estimate.
However, successful AI initiatives could alter this trajectory, making upcoming events pivotal for the company’s future.
Improving Financials
Apple is mostly known for their exemplary innovations like iPhones, Macs, and iPads. Over the years, the company has expanded their lineup, adding smart accessories like their Apple Watches and AirPods and seeing services revenue jump.
Despite several quarterly revenue declines, the reality remains that Apple is a cash flow machine. Services revenue is growing, offsetting weaknesses in other areas of the business, leading to strong and improving margins.
Over the past three months, Apple’s trajectory (from a stock price perspective) has been solid, and greater ETF investing trends could bode well for those looking for secular tailwinds that should persist.
Trading at 22-times forward EBITDA, Apple is certainly not a cheap stock. But investors are clearly paying up for quality. And until that changes, the company’s improving financial picture could spur greater demand for its shares moving forward.
Worldwide Developers Conference
At the time I’m writing this, Apple’s Worldwide Developers Conference (WWDC) has not yet happened. However, the company is expected to announce a suite of AI enhancements and events with Alphabet (NASDAQ:GOOG) and Microsoft (NASDAQ:MSFT).
This is certainly a catalyst that many have viewed as a key reason for the recent stock surge Apple has seen.
Apple has reportedly struck a deal with OpenAI to integrate ChatGPT into iOS 18 and is negotiating with Google to offer the Gemini AI assistant on iPhones.
Siri is expected to improve using Apple’s large language models, enhancing its utility for everyday tasks. Anticipated features include suggested email and message replies, text summaries, voice memo transcriptions, and improved photo editing in main apps.
I will certainly provide updates on the major announcements Apple provides during the address in future articles. But given what the market is pricing in, this will clearly be a stock to watch this week as investors price in what was announced (and maybe what wasn’t).
Apple Still Looks Like a Solid Hold
Certainly, there are concerns around Apple’s valuation. The company has seen slower than expected growth in recent years, with revenue actually declining on a year-over-year basis during recent quarters, suggesting the company’s multiple of over 30-times earnings may be getting rich.
However, Apple’s mix has improved, with the company’s services segment seeing 14% year-over-year growth, driving strong margins and profitability.
With an upward trend in place in the broader markets, and capital continuing to flow into the largest cap names, I think Apple is positioned well as a relatively defensive option in this space.
Of course, anything can happen. The iPhone has certainly matured as a product line, and it’s unclear where the next wave of innovation will come from.
Personally, I think AAPL stock looks like a hold here, and investors may benefit from remaining market weight in this name.
On the date of publication, Chris MacDonald 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.