Apple Inc. has faced a tough year in the stock market due to a lack of clarity on its future growth prospects. However, the recent news of the company’s plans to focus on artificial intelligence (AI) through an overhaul of its Mac computer line has resonated with investors. This resulted in a significant increase in the stock price, with a 4.3% gain and a value addition of $112 billion, marking its best performance in almost a year.
Investors believe that any move by Apple to integrate AI into consumer hardware could be highly beneficial for the company. However, the true impact of this decision is yet to be determined. The sustainability of this rally will depend on Apple’s ability to deliver on its growth promises. Prior to the announcement, the stock had experienced a 15% decline from its record high in December, erasing over $460 billion in market value. With the stock currently trading at a relatively low level, bargain-hunters are finding it tempting to take a chance on Apple’s AI endeavors.
To maintain this positive momentum, Apple will need to successfully incorporate AI into its flagship product, the iPhone. On Friday, the stock saw a modest gain of 0.5%.
Trading at Discount
Daniel Skelly, head of Morgan Stanley’s wealth management market research and strategy team, expressed optimism about Apple’s future. Skelly believes that Apple’s recent struggles are temporary and that the company will bounce back. Despite its recent underperformance compared to other tech giants like Tesla Inc., Apple’s stock is considered relatively cheap, trading at a discount to its peers. Skelly highlighted Apple’s strong financial position, cash flow, and buybacks as defensive qualities that make it an attractive investment. He also mentioned that expectations are growing for an AI-enabled iPhone in the future, which could further boost Apple’s appeal.
Hedge Fund Enthusiasm
Hedge fund investors are showing increasing interest in Apple, despite the challenges it faces in China and its services business. JPMorgan analyst Samik Chatterjee believes that the reduced valuation and the positive impact of AI technology are attracting these investors. In fact, they are considering it as an opportunity to enter the market and are optimistic about the potential of the AI upgrade cycle.
The overall expectation among Apple investors is that AI will act as a catalyst for renewed growth. Although the company has experienced declining revenue in recent quarters, there is hope that AI will help drive a rebound. Analysts predict a contraction in sales for the second quarter, but anticipate a gradual recovery later in the year.
Bank of America Corp. analyst Wamsi Mohan also shares this positive outlook. He believes that investors have underestimated Apple’s gross margins in the past and expects them to increase significantly. This will be driven by a greater emphasis on services within Apple’s overall portfolio.
Overall, despite the challenges, there is growing enthusiasm among hedge fund investors for Apple, thanks to its reduced valuation, AI prospects, and the potential for improved gross margins.
