Apple shares have reached an all-time high, with the stock hovering just below the $200 mark. Despite four consecutive quarters of declining year-over-year revenue, there are three key reasons to believe that Apple can break through this barrier and continue its upward trend.
1. Structural Gross Margin Expansion
Citi’s analysts are confident that the bears on Apple stock are missing the significant potential for structural gross margin expansion. This expansion will be driven by the premiumization of iPhones, an acceleration in services sales, and the benefit of silicon insourcing. Citi analyst Atif Malik explains in a research note, “We expect these trends to continue into next year, and we see the adoption of AI Phones and Vision Pro as potential catalysts for further upside.” With a Buy rating and a $230 target price on Apple stock, Malik is optimistic about the company’s prospects.
2. Growing Services Segment
While there is much debate surrounding Apple’s hardware, Malik argues that its services segment continues to be a strong growth engine. He predicts that services such as Apple Care, iCloud, and other licensing services will be the fastest-growing segments, comprising approximately 45% of total services revenue by FY2025. This growth in services will also drive upside to the company’s overall gross margins.
3. Potential iPhone Sales Growth
Although there are concerns about the demand for iPhones in the near term, especially with Huawei’s resurgence as a domestic rival in China, Apple could still benefit from sales growth in emerging markets. India, in particular, has a low penetration rate for iPhones, making it a potentially lucrative market for Apple.
Overall, despite recent challenges, Apple is well-positioned to overcome them and continue its upward trajectory. The company’s focus on structural gross margin expansion, growing services segment, and potential iPhone sales growth in emerging markets bode well for its future success.
Apple’s iPhone 15 Builds Remain Steady Despite Competition and Market Concerns
In a recent research note, Wedbush analyst Dan Ives stated that Apple has not shown significant changes in its iPhone 15 2023 builds since it started shipping devices. This is despite concerns about Chinese consumers shifting towards Huawei and potential macro issues affecting iPhone demand. Ives maintains an Outperform rating and has set a target price of $250 for Apple stock.
Long-Term Growth Potential in AI Capabilities and Virtual Reality
Citi analyst Malik also highlighted the long-term potential tailwinds for Apple. He mentioned the increasing demand for smartphones with artificial intelligence capabilities and Apple’s virtual-reality headset. Malik believes that further developments in AI could enhance personal assistance and simplify day-to-day tasks, leading to higher demand for processing and storage. He suggests that the real impact of these advancements could extend beyond 2025/2026.
Apple’s Vision Pro Headset as a Catalyst
Apart from AI-enabled phones, Apple’s Vision Pro headset is viewed as another long-term potential catalyst for the company. Analysts at UBS predict that the first generation of the headset, priced at $3,499, could generate around $1.4 billion in revenue in fiscal 2024, which could rise to $3.2 billion in fiscal 2025. UBS analyst David Vogt mentioned that the second-generation device will be smaller and lighter, providing enhanced comfort while retaining the same capabilities. Vogt maintains a Neutral rating and has set a target price of $190 for Apple stock.
Overall, despite market concerns and competition, Apple seems to be maintaining stability in its iPhone builds. The company’s focus on AI capabilities and virtual reality presents promising long-term growth opportunities. The Vision Pro headset is expected to be a strong revenue generator for Apple in the coming years. With these factors in consideration, Apple’s stock continues to show promise for investors.