So far, artificial intelligence has mostly been considered in terms of infrastructure investments, which have attracted all the investors' attention to companies like Nvidia (NVDA) and hyperscalers. The situation might start changing soon as HSBC is convinced that Apple (AAPL) is approaching the time when it can benefit from having a big installed base instead of engaging in an AI arms race. At the same time, the company has one of its best product lines ever, which makes Apple ready to enter a new upgrade cycle as it takes back the title of the world's most valuable publicly traded company from Nvidia.
About Apple Stock
Apple is the largest consumer technology company in the world that designs iPhones, Macs, iPads, wearable products, and an expanding ecosystem of services. Headquartered in Cupertino, California, the company has a market capitalization of nearly $4.9 trillion, thus making Apple one of the most valuable businesses in history.
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Over the last 52 weeks, the stock price rose by more than 50% and is trading at around 3% below its historical high after having recovered well from previous AI-related concerns. Over the period in question, Apple significantly outperformed the broader market index, S&P 500 ($SPX), as investors realized that the company is better at monetizing its giant ecosystem instead of competing in AI models.
www.barchart.com Currently, Apple trades at 38.0x forward earnings and 11.8x sales, thus being valued at a premium relative to most large-cap tech peers. However, such valuations are due to the great profitability of the company—26.9% profit margin and 146.7% ROE. The current valuation looks justified provided that Apple is successful in stimulating customers to upgrade their devices and expand higher-margin Services revenues.
Apple is also continuing its practice of returning money to its shareholders. In addition to its latest financial results, the company raised its quarterly dividend by 4% to $0.27 per share and authorized a new share buyback program of $100 billion.
Apple Beats on Earnings
In Q2 FY24, Apple reported another strong quarterly performance with revenues increasing by 17% YoY to a record high of $111.2 billion. At the same time, the diluted EPS increased by 22% YoY to $2.01, beating analysts' estimates.
Management noted that the record revenues in Q1 were driven by the record-high March quarter iPhone revenues as of the exceptional demand for the iPhone 17 lineup. In addition, the Services revenue achieved another record high thanks to the expansion of the company's installed base to the record level in every geographic region and product category. Finally, product innovations, including the iPhone 17e, M4-powered iPad Air, and MacBook Neo, contributed to the ecosystem.
The recent HSBC upgrade is indicative of the fact that the market is still underestimating Apple's next growth period. The investment bank raised its recommendation from "Hold" to "Buy" while increasing its price target from $260 to $366. According to HSBC, the company only spends about 2.5% of its estimated 2026 revenues on capital expenditures as opposed to 39% of hyperscalers, hence allowing it to ignore the increasingly controversial AI spending discussion but taking advantage of artificial intelligence through its installed base of almost 2.5 billion active devices.
In addition, the bank expects that over the next two years the company will have a particularly strong hardware roadmap. Apart from the upcoming launch of the iPhone 18 Pro lineup, HSBC expects the launch of the iPhone Air in 2027, a long-awaited foldable iPhone, a special 20th-anniversary iPhone, and Apple's glasses. At the same time, the major improvements in Apple Intelligence and Siri are likely to stimulate a replacement cycle for the users of the iPhone 15 and iPhone 16 generations. That's why HSBC raised its 2027 and 2028 revenue forecasts by 7%-9% and the 2027 Services revenue forecast by 5.4%.
The next earnings release date of Apple has not been disclosed yet, so investors should wait for the official information until the company reports its quarterly results.
What Do Analysts Expect for AAPL Stock?
As of the recent HSBC upgrade, the number of investors who expect that Apple's AI strategy can boost the demand for hardware without big capital expenditures grows. AAPL stock has a "Moderate Buy" rating consensus with an average analyst price target standing at $318.69, which currently implies approximately 2% downside relative to the recent share price of around $326, indicating that the majority of the short-term optimism is already baked into the stock. However, the highest target price of $400 implies upside potential if Apple's AI-driven upgrade cycle turns out to be more powerful than anticipated.
www.barchart.com On the date of publication, Yiannis Zourmpanos did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
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