Shares of tech company Apple (Nasdaq: AAPL) has been melting to touch new all-time highs in recent weeks, thanks in part to the WWDC (World Wide Developers Conference) event that unveiled a bit more of the firm's AI plans. It's not just AI and a smarter Siri that Apple is going for though. The company has a number of exciting new products in the pipeline, many of which could help boost its native computing business after the Vision Pro's slow launch. Despite the meltdown and meltdown, I should be bullish on Apple stock.
Of course, it's hard to believe that AAPL stock actually sank nearly 2% the day of the WWDC keynote. Either way, it didn't take long for analysts to lift the stock higher as they unleashed a wave of rapid upgrades in response to the Apple intelligence. Perhaps a little guidance was just what investors needed as Apple's AI plans unfolded. Going forward, more interesting developments could serve as even more fuel for analyst upgrades over the coming 18 months.
Whether it's worth the hefty price of admission, however, is the big question. After all, Apple's stock has rarely traded at a price-to-earnings (P/E) valuation multiple of more than 35 times.
Apple's Rich Multiple has AI written all over it.
At the time of writing, AAPL stock has a trailing price-to-earnings (P/E) multiple of 35.6. This is the most expensive I've seen Apple shares in years. A forward P/E of 30.9 times doesn't look too good either. Not for a stock that has an average P/E multiple of 25.3 times over the past five years.
In fact, massive catalysts are baked into the stock here. Most notably, Apple's intelligence-powered iOS experience and partnership with OpenAI to bring ChatGPT to the iPhone at no cost. Additionally, other AI server-side models (perhaps Anthropics Cloud, Perplexity AI, or Apple's own) will be coming to what Apple calls Private Cloud Compute (PCC).
If Apple Inc. deals with other AI companies, Apple customers will have many options to fulfill their requests. Having options is never a bad thing!
Perhaps the only thing better than the world's largest language model (LLM) at any given time is access to many LLMs and the ability to easily query each of them. Further, given how quickly AI models outperform each other in any given month, spreading your bets across multiple AIs seems to make the most sense.
Perplexity AI, one of the AI firms Apple was in talks with, allows users to toggle their LLM within the platform for search purposes. Despite its small size, Perplexity appears to be the ultimate AI quest disruptor.
Given the relatively small firm's success, Apple should probably buy the company outright, if not for the AI search platform but for the talent running the show. After all, when was the last time you heard of a team of 55 people who could build a behemoth like the alphabet (NASDAQ:GOOGL) sweat?
Even so, with Apple's unique AI strategy and the personalized touch of Apple Intelligence, I believe its trailing P/E of around 36 times isn't high enough. Early signs suggest that Apple is gearing up for an AI-driven refresh cycle for the ages, with iPhone 16 shipments reportedly projected to increase to 90 million units for the second half of the year (up 11% from the iPhone 15 more) became
Don't forget about native computing
The Vision Pro didn't have a needle-driven launch earlier this year, but its boom was never expected. In fact, Apple seems to have taken itself out of the running with a $3,500 price tag. Either that or the public isn't ready for the most immersive mixed reality product on the market yet. The good news is that the expectations are mainly for the Vision Pro. As enterprise users discover the cost-saving potential of pricey headsets while developers populate the Vision Pro App Store, things will only get better for Apple's native computing business.
In addition to working on a cheaper version of Vision Pro, Apple also looks set to bolster its Vision OS with more intuitive new features. But, perhaps more importantly, Apple is trying to release new products that serve as an onramp in the local computing realm.
Apple could be ready to produce AirPods with infrared (IR) cameras by 2026, according to analyst Ming-Chi Kuo. In fact, another pair of cameras could help greatly improve the local computing experience. Apple is adept at offering seamless experiences on its devices.
As the new AirPods act as an extension of the Vision Pro, Apple may just provide the upgrade needed to convince the public to buy the Vision Pro or a cheaper alternative on the way.
Is AAPL stock a buy, according to analysts?
On TipRanks, AAPL stock comes in as a moderate buy. Out of 35 analyst ratings, 24 have buy, 10 hold, and one sell recommendation. AAPL stock has an average price target of $223.57, indicating a downside potential of 3.48%. Analyst price targets range from a low of $164.00 to a high of $275.00 per share.
Conclusion – Investors should be comfortable paying the premium.
Apple is firing on all cylinders on the AI front, and Wall Street is just catching up. As Apple continues to unveil more details and updates about Apple Intelligence and its AI partners — such as OpenAI — in the cloud, investors should be comfortable paying a premium price tag for AAPL stock.
As Apple nails it on AI, it's retooling its local computing business with a cheaper model and camera-equipped AirPods to improve the odds that a future Apple Vision device will be a hit. Which was never Vision Pro before.
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