Despite the overall market rally, Apple (NASDAQ ) stock has faced challenges this year, and its year-to-date performance reflects a -10.35% year-to-date downtrend.
This drop in Apple stock value came even as they experienced a notable rally. However, amid this backdrop, there is a glimmer of optimism as JPMorgan recently indicated that sentiment around Apple stock is showing signs of improving.
Additionally, JPMorgan highlighted the potential of ai, a revolutionary technology, to rerate Apple's stock, which could lead to a significant turnaround.
JPMorgan says sentiment on Apple stock is rising
JPMorgan analysts said in a note Thursday that sentiment toward Apple is improving among hedge fund investors despite deteriorating data.
“Contrary to deteriorating fundamentals relative to both hardware demand and services growth prospects, interest in AAPL stock has improved from the broader group of investors who have otherwise been reluctant to the premium valuation multiple despite having one of the lowest growth prospects. relative to other mega-cap tech stocks,” the investment bank wrote.
The bank explained that the drivers of the increased enthusiasm for Apple are the fact that the valuation premium is moderating following the decline in Apple shares and the iPhone upgrade cycle driven by artificial intelligence.
“Growing investor appetite has largely been driven by interest in participating in the cyclical upside associated with the ai-led upgrade cycle in devices, with investors taking a cue from the 5G-led upgrade cycle. “added JPMorgan.
Investors May Be Wrong About Apple Stock Again
The bank highlighted several headwinds for Apple such as iPhone sales data including demand in China, cancellation of future opportunity around automotive sector revenue and downside risks to services due to increased scrutiny regulatory in multiple geographies.
However, they say that at the same time, hedge funds are watching for headwinds to create more tactical entry points ahead of the ai upgrade cycle.
The firm sees some similarities with the 5G cycle. For example, hardware adoption potentially runs ahead of consumer understanding of use cases and is driven more by expectations of strong use cases, “even though the questions being asked today are about the ai use cases. Additionally, the replacement cycle has been temporarily accelerated by two to three years due to the upgrade cycle and lack of backward compatibility. For example, 5G capability could not be activated on previous generation 4G phones, while JPMorgan expects the ai feature to not be available on older phones.
Separately, BofA said in a recent note that investors have significantly underestimated Apple's gross margins.
In its analysis, the bank said Street was modeling FY23 gross margins for Apple in
39%, but in reality Apple printed gross margins of 44%, “significantly exceeding (500 bps)
original expectations.
“In our view, the Street continues to once again underestimate Apple's long-term gross margin potential in both products and services, where we see around 180bps of product gross margin upside and around 150bps of product gross margin upside. services on the rise in the coming years. ” they wrote.
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