Apple (AAPL) has spent much of this year facing criticism for its lack of efforts in artificial intelligence (AI). While its Magnificent Seven peers like Meta (META), Microsoft (MSFT), and Amazon (AMZN) are on an AI spending spree, Apple has been viewed as a cautious AI player. However, HSBC has suddenly found reasons to be bullish despite Apple lagging in AI. The firm upgraded the stock to a “Buy” from “Hold” and raised its price target from $260 to $366. The upgrade also arrives at an important time. Apple is only days away from reporting its fiscal Q3 earnings on July 30.
Let’s find out what made HSBC so bullish and what investors should look forward to in the upcoming earnings.
More Top Stocks Daily: Go behind Wall Street’s hottest headlines with Barchart’s Active Investor newsletter.
www.barchart.com Apple’s AI Strategy Looks Different, and That May Be the Point
Apple is spending less on AI, and HSBC thinks that's an advantage.
Investors have once again become skeptical of the tech giants’ massive AI capital expenditures, either dumping AI stocks or being pickier about which ones to add to their portfolio. Goldman Sachs even predicts that the “capex supercycle” will reach $757 billion in 2026 before surging to $920 billion in 2027. Meanwhile, many analysts have criticized Apple for its lack of AI-related development. However, HSBC, instead of criticizing Apple for spending less on AI than Microsoft, Meta, or Amazon, argues that this is actually an advantage. This is probably why Apple is the only Mag 7 stock that has climbed 21% year-to-date (YTD), outperforming all its peers in the group.
According to HSBC, Apple is expected to spend only around 2.5% of its 2026 revenue on AI-related investments, a very minimal amount compared to the 39% that hyperscale cloud companies are collectively committing. While it might appear that Apple is falling behind, HSBC argues that Apple has taken a very different approach, which may ultimately be advantageous.
Instead of trying to build the world's biggest AI models, Apple appears focused on integrating AI into products that hundreds of millions of people already use every day. Customers already remain very loyal to Apple’s products and the ecosystem as a whole. As a result, it is focusing on providing an AI experience that is consistent across all devices, including the iPhone, iPad, and Mac.
By avoiding the massive capital spending weighing on many of its rivals, Apple can maintain strong free cash flow, industry-leading margins, and high returns on invested capital that have long defined its business.
China's regulatory approval could unlock the next phase of Apple's AI growth.
Additionally, this month, Apple received another piece of good news, which might strengthen its bull case. Chinese regulators have now approved Apple Intelligence, removing one of the greatest obstacles to the platform's global rollout. The timing matters as China remains the company’s second-largest market, which has become very competitive, with domestic brands taking market share. With regulatory approval now secured, Apple can begin bringing Apple Intelligence to millions of Chinese users across its entire ecosystem.
Together, Apple's disciplined AI spending strategy and the expansion of Apple Intelligence into China strengthen HSBC's view that the market may be underestimating Apple's long-term AI opportunity.
Earnings Could Determine Whether the Bull Case Gains Momentum
While HSBC’s upgrade has boosted market sentiment, the upcoming earnings at the end of July remain the major catalyst for AAPL stock. Apple reported a strong March quarter, with a 17% increase in revenue and a 22% increase in earnings. Apple's installed base expanded to more than 2.5 billion active devices. iPhone demand remained exceptionally strong, with the iPhone 17 family becoming the most popular lineup in the company's history. Even its Services segment saw a 16% increase in revenue supported by new highs in both transacting and paid accounts.
Under a new CEO, John Ternus, expectations have become high. Besides earnings growth, investors will be looking for updates on the rollout of Apple Intelligence and management's view of the product pipeline over the coming quarters. Furthermore, investors will want to know whether regulatory approval for Apple Intelligence in China could improve sales momentum in the region after several quarters of heightened competitive pressure.
For the June quarter, management expects total revenue to grow 14% to 17% year-over-year (YoY), in line with the consensus estimate. Additionally, analysts expect adjusted earnings per share could increase by 20.4% to $1.89. For the full fiscal year, analysts expect Apple’s earnings to grow by 17.5%, followed by another 10% in fiscal 2027.
But these high expectations also mean there is less room for error. The optimism around Apple has already pushed its stock to a new 52-week high of $334.99. The stock is even trading at 37 times forward earnings, higher than its five-year historical average. This premium valuation reflects growing confidence Apple is entering another stronger product cycle supported by AI. However, this also creates high expectations as Apple is already believed to be lagging in AI. Investors will now want proof that Apple’s AI strategy can translate into higher iPhone demand, stronger ecosystem engagement, and sustainable earnings growth. So in case management signals any cautious outlook that AI adoption will take longer than expected, the stock could take a hit even if Apple reports a strong quarter. Therefore, the upcoming Q3 print is important for Apple investors.
Overall, analysts rate AAPL stock a consensus “Moderate Buy.” Of the 42 analysts covering the stock, 23 offer a “Strong Buy” rating, three have a “Moderate Buy,” 14 offer a “Hold” rating, and two give it a “Strong Sell” rating. AAPL has already crossed its average target price, but the Street-high estimate of $400 implies that shares can rally as much as 22% over the next 12 months.
www.barchart.com On the date of publication, Sushree Mohanty 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.
More news from Barchart
As Nvidia Discloses a 9.3% Stake in Nebius, Here’s How You Should Play NBIS Stock AAPL Stock Alert: HSBC Gives Investors Fresh Reasons to Be Bullish on Apple Before Earnings Huge, Unusual Nvidia Call Options Volume - NVDA Trading Range Attracts Options Players The $266 Million Reason Rocket Lab Stock Is Up Today