Apple‘s (AAPL) stock has recently soared to new all-time highs/$258.21, inching closer to a $4 trillion market capitalization, driven largely by the optimism surrounding AI’s potential to spark a significant upgrade cycle for the iPhone. During a discussion on CNBC’s ‘Squawk on the Street’, Tom Forte, a senior consumer internet analyst at Maxim Group, shared his perspectives on this surge and his ongoing hold rating on Apple’s stock.
Forte attributes the recent run-up in Apple’s stock to an AI-fueled rally, with expectations high that AI enhancements will lead to a major iPhone upgrade cycle. Despite this, he maintains a ‘hold’ rating on the stock due to valuation concerns. Currently trading well above 30 times its price-to-earnings (P/E) ratio, Apple’s valuation is at or above its peers who are also benefiting from the AI surge. Forte points out that even with an anticipated upgrade cycle, Apple’s earnings per share (EPS) growth over the next couple of years looks to be in the mid to high single digits, suggesting that the stock might be overpriced relative to its growth prospects.
When questioned about his skepticism regarding an immediate upgrade cycle, Forte highlights a timing mismatch between hardware and software releases. The iPhone 16 lineup was introduced in September, but the AI-related software updates are being rolled out incrementally, extending into December for the U.S. and potentially April for Europe. This staggered rollout might lead consumers to wait for the next generation model, the iPhone 17, rather than upgrading immediately, thus potentially delaying or diluting the expected upgrade cycle. He also notes the ongoing education of consumers by companies like Google (GOOG) and Apple about the benefits of AI in smartphones, indicating that the demand for AI-driven upgrades is not yet a certainty.
Forte has maintained his ‘hold’ rating since Apple’s developers conference where they unveiled their AI strategy, observing the market’s reaction but waiting for clear evidence of how AI will translate into earnings growth for Apple. Despite the stock’s impressive performance since the conference, he remains cautious.
Discussing Apple’s potential move into home security with a new camera akin to Amazon’s Ring, Forte acknowledges Apple’s extensive installed base with the iPhone but expresses doubt about the impact of this venture on Apple’s financials. Given Apple’s size, he suggests that while such a product might add marginal earnings, perhaps around 10 cents per share, it wouldn’t significantly move the needle, especially when the iPhone still constitutes about half of Apple’s revenue.
In essence, while the market celebrates Apple’s AI advancements and the potential for an upgrade cycle, Forte’s analysis suggests a more measured approach, focusing on valuation, the timing and impact of AI integration, and the comparative scale of new product entries against Apple’s massive revenue base.
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