After a tough 2022, tech stocks came roaring back last year because of two main factors, AI and cloud.
Meta and Nvidia shares gained over 100% and 200% respectively over the past 12 months on the back of better financials and the future potential of artificial intelligence.
Microsoft and Amazon gained over 50% apiece, largely due to cloud revenue as well as hype around how AI could be integrated into Microsoft’s products.
Apple (NASDAQ: AAPL) lagged behind its big-tech brethren, notching a 1-year return of just over 22%. That’s largely attributable to Apple’s revenue still being driven by the iPhone, and its AI and cloud efforts haven’t fueled as much investor enthusiasm. The company’s most high-profile launch for 2024 is the mixed-reality headset Vision Pro.
The luxury-priced item is controversial, but some astute analysts believe it success will fall somewhere between that of the Apple Watch and the iPad.
At the moment, Apple lives and dies by the iPhone and its ecosystem of services. That’s why it was alarming when the company reported a significant slowdown in iPhone sales in China last quarter.
None of those factors have tempered Gene Munster’s belief in Apple. The co-founder and managing partner of Deepwater Asset Management has gone on record time and again that AAPL is undervalued. According to Munster, Apple is only at the beginning of its AI implementation, which will only make the company’s ecosystem and moat that much stronger.
So is Gene Munster right to be bullish on Apple?
Why Did Apple Stock Drop?
AAPL took a slight dive after the company released its 1st quarter of fiscal 2024 earnings (ending December 31, 2023). It bounced back immediately but the initial sell-off was probably due to the 13% decline in Chinese iPhone revenue in the quarter. However, total revenue of $119.6 billion was 1.11% better than analysts expected.
Apple outperformed on the bottom line as well, bringing in $33.9 billion in net income. That was a 13% improvement year-over-year. Diluted earnings per share (EPS) came in at $2.18, which was 3.7% better than the consensus EPS expectations of $2.10.
The company reported revenue growth after four quarters of dipping sales. Even after the slowdown in China, Apple brought in better-than-expected iPhone sales of $69.7 billion compared to the estimate of $67.82 billion.
The company also increased its devices in use from 2 billion last year to 2.2 billion by the end of 2023. Still, the company’s services revenue for the quarter was 1% less than expected.
Gene Munster Apple Price Target
Gene Munster has placed a price target of $350 or better on Apple within the next two years.
Although year-over-year sales growth was overshadowed by decreased sales in China, Munster has continued to tout Apple as one of the tech giants that still has the potential to rise.
A major part of his reasoning hinges on the hypothesis that the company will launch a substantial generative AI product in the summer of 2024. That was echoed by Apple CEO Tim Cook, who said that the company has “made enormous progress integrating AI and machine learning” into its services.
The possibility of an AI-driven Apple ecosystem will certainly engage investors, but the details are still too few. Cook said that further information would have to wait until later in the year.
There is speculation that the AI implementation could lead to a supercharged SIRI, but that has not yet been confirmed. Even if the popular virtual assistant gets a facelift, it may not differentiate Apple from the competition. Microsoft just rolled out its full-fledged AI virtual assistant, Copilot, to businesses and individuals last month.
How Do Analysts Rate Apple Stock?
The consensus on Wall Street isn’t quite as bullish as Mr. Munster. His forecast is the highest for the stock, and he predicts AAPL will rise to $350 over the next two years.
Even though over 60% of the analysts still rate AAPL as a Buy, the median forecast is a more modest 5.65% increase to $200 over the next 12 months.
9% of the analysts rate Apple as a Sell, and the lowest forecast sees AAPL falling to $125 per share, nearly 34% lower than where the stock currently trades.
Is Apple Stock Undervalued?
Gene Munster is an ardent supporter of the company, and he’s certainly been consistent in his optimistic views.
In January of 2023, he said that AAPL was a $250 stock, and that it would double over the course of the year. While that didn’t happen, Apple is an exceptional company that is a staple of portfolios large and small.
Even though Apple was recently eclipsed by Microsoft as the world’s largest company, it is still a $2.92 trillion giant with a rock-solid brand and ecosystem. The price-to-earnings ratio now stands at 29.45x, which is right in line with the tech industry average P/E.
AAPL also pays a dividend, which has been steadily on the rise since 2020. Now with a dividend yield of 0.51%, the quarterly payout comes to $0.24 per share.
Is Apple Stock a Buy or Sell?
Apple hasn’t enjoyed the tailwinds of AI buzz as Nvidia and Microsoft have over the past year but its concentrated portfolio of products and ecosystem of services are must-haves for consumers who keep spending.
The dependence on the device is why it’s troubling that iPhone revenue is down in China. However, any temporary sales dip in the country is likely to be quickly forgotten if Apple delivers on its promises of integrating AI into its ecosystem.
At this point, there is not enough information to tell whether the company’s artificial intelligence forays will deliver in a meaningful way.
It’s arguably a little concerning that Meta, Microsoft, and others already have a healthy head start on Apple in that department. Nonetheless, Tim Cook tends to focus less on talking about future innovations as opposed to delivering on them, so investors can take solace knowing significant development in AI is continuing behind the scenes even if the public is not yet being made aware of the details.
The bottom line is Apple remains a solid investment and it would be a risky proposition to bet against Gene Munster over the long haul.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.