appleof (Nasdaq: AAPL) Apple’s shares have risen 18% in the last month, with a variety of factors driving the growth, including the debut of the company’s artificial intelligence (AI) platform, Apple Intelligence, reported increased product sales, and expectations that the Federal Reserve will soon cut interest rates (thus lowering borrowing costs).
The increase is a welcome change from the slow growth seen for much of the first half of 2024. The chart above shows that through June, Apple’s stock price actually fell, underperforming relative to some of its “big tech” rivals. Apple’s slowdown in growth was driven primarily by declining revenues in its product business and concerns about its lack of positioning in AI.
However, the iPhone company seems to be turning things around with a change in product strategy, while Apple is on the side of market forces, with the bull market driving up its stock price. S&P 500 A 56% increase since October 2022.
The tech giant appears to be on a growth trajectory, and in this bull market, here are two reasons why you should buy Apple stock like there’s no tomorrow.
Earnings season is just around the corner
Apple’s second quarter earnings (released May 2nd) were pretty strong, even though sales were down 4% year over year. Net sales were $91 billion, beating Wall Street expectations by $190 million. Meanwhile, earnings per share (EPS) were $1.53, beating expectations by about $0.03. Thanks to strong growth in its digital services division, the company’s gross profit margins rose to 47%.
However, Apple could see even stronger results in the third quarter of 2024 (due to be announced on August 1) as sales of its Mac and iPhone divisions are expected to increase.
According to IDC data, the PC market recovery continued in the second quarter, growing 3% year over year. Lenovo, home pageand Acer saw growth of 2% to 14% over the same period. But it was Apple that saw the most growth, with Mac division sales surging 21%.
Additionally, recent reports suggest that iPhone sales are growing strongly in China, Apple’s third-largest market. According to Bloomberg, iPhone shipments in the East Asian country increased 40% in May after growing 50% in April. Sales in China have been a sore spot for Apple this year, falling 8% year-over-year in the second quarter of 2024 amid growing competition from domestic brands such as Huawei.
Apple has responded to this decline in sales by heavily discounting its products, and it appears to be working. While discounts can be a short-term solution to a problem, when it comes to smartphones, consumers tend not to switch operating systems very often, so sales could potentially help Apple by winning over long-term customers.
The upcoming iPhone launch will likely reveal Apple’s next move into AI.
Apple unveils its latest iPhone lineup every September, and 2024 will be no different. But this year’s iPhone launch could be its most significant yet, as the company is expected to further expand its AI efforts.
iPhone sales in the second quarter of 2024 fell 10% year over year along with declines in other product segments. The smartphone division, the most profitable part of Apple’s business, appears to be in need of an overhaul. As a result, Apple is strategically using the expansion of AI to boost sales of iPhones and other products.
In June, the company unveiled Apple Intelligence, an AI platform developed to improve user experiences across its product lineup. Tools like image and language generation, as well as a major upgrade to Siri that gives access to OpenAI’s ChatGPT, aim to simplify everyday tasks using AI.
During the presentation, Apple revealed that only the iPhone 15 Pro and above will have access to Apple Intelligence, while Mac and iPad users will need devices with the company’s M1 to M4 chips to take advantage of the feature.
Apple Intelligence is expected to be released in the fall to coincide with the launch of the iPhone 16. It’s unclear what other features the new phone will have, but it will be the first iPhone explicitly designed with AI in mind. As a result, the phone could boost sales in the coming months and motivate buyers to upgrade to other products that have access to Apple Intelligence.
Bloomberg reported on July 10 that Apple has told suppliers that it aims to increase iPhone 16 shipments by about 10% after sales of the iPhone 15 reach 81 million units in the second half of 2023.
Could be worth the premium price
Apple’s stock trades at about 35 times forward earnings, meaning it doesn’t offer the best value, but its proven ability to grow profit margins and cash flow could make the premium worthwhile.
The company’s Digital Services division is likely to see further growth due to increased product sales as users take advantage of new AI capabilities. The company’s AI push opens up countless growth opportunities and avenues to monetize its services in the coming years.
With free cash flow hitting $102 billion this year and a potentially ripe stock price boost, Apple remains an attractive long-term buy.
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John Mackey, former CEO of Amazon subsidiary Whole Foods Market, is a member of The Motley Fool’s board of directors. Alphabet executive Suzanne Frey is a member of The Motley Fool’s board of directors. Dani Cook has no investment in any of the stocks mentioned. The Motley Fool owns shares of and recommends Alphabet, Amazon, Apple, HP, and Microsoft. The Motley Fool recommends long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
The bull market is here. Two reasons to buy Apple stock like there’s no tomorrow. Originally published by The Motley Fool
