Despite the recent headwinds pressuring Apple’s stock, the company remains a titan in the tech industry. Its recent earnings provided some positives for investors, helping to lift the stock. Additionally, the unveiling of the M4 chip, powering the latest iPad Pro, hints at Apple (NASDAQ:AAPL)'s unwavering commitment to innovative hardware. Bernstein has now chimed in, highlighting what it believes is the Apple bull case.
Apple stock rebounds after earnings
Apple’s stock price surged in response to its recent earnings release, experiencing a significant rise of nearly 6%.
The iPhone maker reported second-quarter earnings of $1.53, $0.03 better than the analyst estimate of $1.50, while revenue for the quarter came in at $90.8 billion, above the consensus estimate of $90.32 billion.
In addition, Apple declared a cash dividend of $0.25 per share of the company’s common stock, an increase of 4%.
In greater China, a central focus for investors and analysts in recent months, Apple’s sales fell 8% to $16.37 billion amid rising competition from smartphone rivals in the country. However, that was not as bad as analysts' forecasts of $15.25 billion.
In a note following the earnings announcement, Bernstein analysts stated: “Apple executives projected a positive tone, repeatedly highlighting its AI opportunity and exciting forthcoming announcements."
What is the bull case for Apple stock
Now, Bernstein has taken a deeper look at the potential bull case for Apple’s stock.
The investment research firm, focusing on China, said that while there may potentially have been some inventory build in the country in Q2, they don’t worry about it.
“AAPL guided above normal seasonality for Q3 with solid GMs, which it did not have to do, and would not have done if global inventory was bloated. We see China’s business as cyclically pressured, not structurally altered,” wrote Bernstein.
Meanwhile, the firm sees more of Apple’s AI announcements occurring in September at the iPhone 16 launch than at the WWDC event. However, they see WWDC as “directionally positive as well.”
“We see 3 main avenues for Apple to monetize AI: 1) Offering on-device AI capabilities to drive a stronger upgrade cycle; 2) AI search revenues through Advertising, assuming AI search is on net incremental to traditional search; 3) increased App Store spending, if AI drives a new AI-based applications,” Bernstein analysts add.
On potential regulatory headwinds, Bernstein is “relatively sanguine,” stating that while the Google (NASDAQ:GOOGL) DOJ case is the most pressing and presents headline risk, “even an adverse ruling would likely result in a choice screen, with Google paying AAPL at similar levels to today.”
Overall, Bernstein feels an Apple bull case is $8 in EPS in FY 25, and Apple re-rating to the top end of its valuation range, pointing to a share price of $235. They add that the bull case is that the replacement cycle and AI tailwinds could drive a strong iPhone 16 cycle and that Apple’s longer-term valuation is “reasonable given its ultra-high quality of earnings/cash flow, strong moat, and sustained growth story.”
The firm maintained an Outperform rating and $195 price target on the stock, noting the positive risk/reward.