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Apple's Strategic Move in AI Signals Exciting Times Ahead for Investors

By Don Francis, Editor
May 14, 2024 9:30 AM UTC
Apple's Strategic Move in AI Signals Exciting Times Ahead for Investors

Wedbush's Daniel Ives reiterated their Buy rating on Apple (NASDAQ: AAPL). The analyst also maintained a $250 price target.

In a note to investors, Ives highlighted Apple's strategic move in placing its most advanced high-end chips in the data centers that will process its AI-based services. This decision is seen as a way for Apple to have greater control over its AI path and build a broader chip ecosystem for its AI strategy. Ives stated, "In the AI revolution, Apple is much further down the path of its own proprietary AI LLMs and technology than the Street realizes."

This move by Apple is expected to be a significant development heading into the Worldwide Developers Conference (WWDC) in June. Ives believes that this event could be the biggest unveiling for CEO Tim Cook and Cupertino in roughly a decade.

The analyst's positive sentiment towards Apple comes after the company's Q2 2024 earnings report. Apple reported earnings per share (EPS) of $1.53, surpassing the Zacks Consensus Estimate by 1.32% and Q2 2023 by 0.7%. Total revenue for the quarter reached $90.75 billion, beating the Zacks Consensus Estimate by 0.85%. However, it fell short of Q2 2023 by 4.3%.

While Apple experienced a decline in products revenue, particularly in iPhone revenue, the company's gross margin showed improvement. The company's gross margin stood at 46.6%, a 70 basis point increase sequentially. Additionally, Apple returned $27 billion to shareholders during Q2, including $3.7 billion in dividends and $23.5 billion through the repurchase of 130 million shares. Furthermore, Apple authorized an additional $110 billion for share repurchases.

Looking ahead to Q3 2024, Apple's management has provided guidance indicating that total revenue is expected to increase by low single digits year-over-year, despite a forex headwind of 2.5%. The company also anticipates double-digit growth in iPad revenue and a gross margin ranging from 45.5% to 46.5%. The operating expenses are estimated to be between $14.3 billion and $14.5 billion.

CEO Tim Cook expressed satisfaction with Apple's Q2 performance, particularly highlighting the all-time revenue record in services. He also mentioned the launch of Apple Vision Pro and the upcoming product announcement, along with the highly anticipated WWDC next month.

Analysts have weighed in on Apple's prospects, with 56.3% of top-rated analysts rating AAPL as a Strong Buy or Buy. Meanwhile, 37.5% see it as a Hold, and 6.3% recommend or strongly recommend selling the stock.

The consensus forecast among analysts is that Apple's upcoming year will deliver an EPS of $6.92. If these predictions hold true, it would represent a 7.2% increase on a year-over-year basis.

Since Apple's latest quarterly report on May 2, 2024, the stock price has risen by 7.7%. In comparison, the stock has experienced an 8.3% increase year-over-year. However, during this period, Apple has trailed behind the S&P 500, which has seen a 26.2% increase.

Daniel Ives, the Wedbush analyst who reiterated the Buy rating on AAPL, is ranked in the top 7% of Wall Street analysts. With an average return of 4.5% and a 52.6% win rate, Ives specializes in the Communication Services and Technology sectors, among others.

Apple Inc., headquartered in Cupertino, California, is a global technology company known for designing, manufacturing, and marketing a wide range of products and services. These include smartphones, personal computers, tablets, wearables, and accessories. Some of Apple's notable offerings include the iPhone, Mac, iPad, AirPods, Apple TV, Apple Watch, and Beats products. The company also provides services such as AppleCare support, cloud services, the App Store, Apple Arcade, Apple Fitness+, Apple Music, Apple News+, Apple TV+, and Apple Pay. Apple serves consumers, small and mid-sized businesses, as well as the education, enterprise, and government markets. The company distributes third-party applications through the App Store and sells its products through retail and online stores, as well as through various partners.

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