Much of the expected upside from Apple’s artificial intelligence strategy may already be priced into the share price, according to MoffettNathanson. Analyst Craig Moffett initiated coverage on the iPhone maker on Monday with a neutral rating and a $211 price target, arguing that while Apple is close to winning the AI race, the news is already factored into the share price. MoffettNathanson’s target represents about 7% downside from Friday’s closing price. “We firmly believe Apple’s well-crafted AI strategy will drive a significant upgrade cycle,” Moffett wrote. “We also expect AI to eventually underpin a paid digital assistant, providing another boost to their extremely high-margin services business. But all that and more is already built into Apple’s stock price.” Apple unveiled its AI strategy, called “Apple Intelligence,” as investor concerns grew that the largest U.S. company by market value was falling behind competitors in the AI race. Now, many analysts believe its launch later this year could trigger an unprecedented upgrade cycle for Apple products, particularly iPhones. Moffett compared the company’s AI strategy to the “perfect storm” of the 5G upgrade cycle in 2021 and 2022, noting that Apple entered that phase with a lower price-to-earnings ratio than it has today. Interest rates were also substantially lower then, meaning Apple would need a “significantly higher” growth rate to achieve a similar multiple today, he added. “Taken together, these two valuation observations suggest the market has already priced in an iPhone cycle that is substantially larger than the one we saw in 2020/21,” he said. Beyond the U.S., Moffett also argues that regulatory obstacles and geopolitical concerns could hinder the adoption and rollout of the company’s AI. He also sees potential risks from the government’s antitrust lawsuit against Google, which is paying Apple handsomely to make its search engine the standard. AAPL 3M Mountain Shares Over the Past Three Months Apple shares have gained more than 16% this year. The stock is up more than 6% since the start of the third quarter, outperforming all of the Magnificent Seven’s peers except Tesla. “To be clear, we’re not suggesting here that Apple is overvalued. We’re simply pointing out that it’s simply not credible to claim that an AI-driven upgrade cycle on the scale of the 2021 5G cycle was somehow not expected by the market,” Moffett wrote.
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