 "Apple’s stock currently trades at 34 times its projected earnings over the next 12 months, making it one of the pricier names among the so-called Magnificent Seven. Only Amazon (40 times) and Tesla (140 times) carry higher valuations. Image Credit: Reuters")
Apple is riding high once again, reclaiming its title as the world’s most valuable company. On Monday, Apple’s stock closed at a record $251.04, reflecting a stunning 50 per cent surge from its April lows. This year alone, shares have climbed 35 per cent, outpacing the S&P 500’s 28 per cent gain and shrugging off earlier doubts sparked by underwhelming reviews of its AI offering, Apple Intelligence.
While iPhone sales—Apple’s revenue backbone—remain sluggish, investor confidence seems unshaken. Much of this optimism rests on the tech giant’s AI ambitions, even if they’re unlikely to boost iPhone sales significantly in the short term.
Why investors are bullish
According to JPMorgan analyst Samik Chatterjee, the real AI windfall will come with the expected 2025 launch of the iPhone 17. He projects iPhone sales will rise from 230 million units this fiscal year to 251 million the following year. Even if AI doesn’t move the needle right away, Chatterjee argues there’s still plenty to cheer about.
Apple’s growing services business—including Apple Music, Apple Pay, TV+, and its technical support products—remains a critical revenue driver. Chatterjee believes this segment is more resilient than many investors realise, offering stable growth even if iPhone sales falter.
On top of that, Chatterjee expects expanding profit margins and aggressive share buybacks to push earnings growth beyond revenue increases. A potential consumer spending boost in China, thanks to fiscal stimulus and monetary easing, could also help Apple maintain its momentum.
The Warren Buffett question
Not everyone is sold on Apple’s current valuation. Warren Buffett made waves earlier this year when he reduced Berkshire Hathaway’s position in Apple by two-thirds, prompting speculation that the stock might be too pricey. Yet, despite trimming his holdings, Apple remains Buffett’s largest public investment, worth a staggering $74 billion.
Apple’s stock currently trades at 34 times its projected earnings over the next 12 months, making it one of the pricier names among the so-called Magnificent Seven. Only Amazon (40 times) and Tesla (140 times) carry higher valuations.
Chatterjee, however, remains confident, maintaining a $265 price target for Apple shares. He argues the valuation is justified, aligning with Apple’s historical trading averages. If Apple’s AI push extends the iPhone upgrade cycle, he believes investors will continue to support a higher earnings multiple.
A limited downside for iPhone sales
Even if AI enthusiasm fades, Chatterjee sees little risk of iPhone sales tanking. He points to historically low replacement rates, suggesting many users are due for upgrades, which could stabilise volumes. Combined with steady consumer spending, Apple has a solid foundation to weather any dips.
In short, while Apple Intelligence might not skyrocket sales right now, investors are betting on a longer-term AI story. For Apple, the road ahead seems paved with optimism—AI or not.