Is Apple Stock a Buy Now?

Apple shares surged over 12% in May, recovering from an 8% decline earlier in 2024, after its Q2 FY24 results surpassed analyst expectations. While overall revenue decreased 4% year-over-year to $90.8 billion due to lower iPhone sales, services revenue hit a record $23.9 billion, up 14%, and EPS reached $1.53, beating estimates. The company anticipates a return to low single-digit revenue growth in the current quarter, driven by strong services and iPad performance, and is poised to capitalize on the AI smartphone market with upcoming iOS 18 features, leading to increased analyst earnings expectations and a Wedbush price target upgrade to $275.

Analysis

Apple's stock performance has pivoted positively, with a 12% gain in May reversing an 8% decline from the first four months of 2024. This shift was catalyzed by its fiscal Q2 2024 results, which, despite a 4% year-over-year revenue decline to $90.8 billion, surpassed Wall Street's expectations. The revenue dip was driven by a significant drop in iPhone sales to $46 billion from $51.3 billion a year prior. However, this weakness was mitigated by a record-setting performance from the Services division, which grew 14% year-over-year to $23.9 billion, helping the company beat EPS estimates with $1.53 per share. Critically, management has guided for a return to low single-digit revenue growth in the current quarter, forecasting double-digit growth in both the Services and iPad segments. The primary forward-looking catalyst is Apple's anticipated integration of AI into its ecosystem via iOS 18, which is expected to stimulate a major iPhone upgrade cycle and address recent hardware sales stagnation. This outlook is bolstered by improving analyst sentiment, with 28 analysts raising current-year earnings estimates and Wedbush setting an aggressive $275 price target. At 29 times trailing earnings, the stock trades at a slight discount to the Nasdaq-100's multiple of 31, while the DOJ lawsuit remains a noted background risk factor.

Key Decisions for Investors

• Given the better-than-expected earnings, positive guidance for a return to growth, and a significant upcoming AI catalyst, investors could view the stock's valuation at a slight discount to the tech sector as a strategic entry point.
• The primary variable to monitor is the market's reception of iOS 18 and the next iPhone, as a successful AI-driven upgrade cycle is critical to reversing the decline in hardware revenue, which accounts for half the company's sales.
• While the AI narrative is compelling, investors should remain cognizant of the ongoing Department of Justice lawsuit, which was a key headwind earlier in the year and remains a material risk.
• Consider the divergence in analyst outlooks; while the median price target of $202 suggests modest upside, more bullish targets like Wedbush's $275 are contingent on a highly successful execution and monetization of the new AI strategy.