Bernstein says buy Apple while stock price is low
Investment firm Bernstein is recommending clients buy Apple stock, and expects issues such as declining Chinese demand for the iPhone to be cyclical, especially with an AI iPhone.
Apple is dealing with regulatory pressures and other unknowns
Bernstein's position goes against that of JP Morgan, which does expect a boost from AI for Apple, but not until 2026 and the iPhone 17. Morgan Stanley has said that it is bullish about Apple, yet it also downgraded its stock price.
Now Bernstein has retained its $195 target price, but it's upgraded Apple to "outperform" status. Speaking with CNBC, Bernstein analyst Toni Sacconaghi said that Apple's currently lower stock price makes this a good time to buy.
"We think Apple is a great consumer franchise," he said. It's a quality compounder and a stock that arguably controls or sells the most important thing in most consumers lives other than their spouse... and what we found is we're getting a price break on it."
Being able to buy Apple at its current price is the principle reason for Bernstein upgrading it, continued Sacconaghi. He also said that in hindsight, Bernstein had previously downgraded Apple's stock too early.
"We thought it got too expensive," he said. "But you know the company's done a great job in building a services franchise and monetizing its installed base of two plus billion devices."
In the Bernstein note to investors seen by AppleInsider, Sacconaghi also addresses the chief reason for Apple's stock going down, the declining demand for the iPhone in China. He said this is "more cyclical than structural," and pointed out that China has previously been a volatile market.
While Bernstein does have low expectations ahead of Apple's Q2 2024 earnings, the analyst says the company is entering its seasonally strong period. In 15 of the last 17 years, he wrote, Apple's stock has outperformed in the quarter leading up to the next iPhone launch.
"We do also believe that the forthcoming iPhone cycle the iPhone 16 will be a good cycle," Sacconaghi told CNBC. "We do think that Apple will have an AI-enabled phone and market that aggressively and persuasively to consumers."
Apple is due to report its next earnings on May 2, 2024.
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Comments
1. China invades (or blockades, or takes some some other highly disruptive action against) Taiwan
I'd say there's maybe a 1 in 5 chance of this happening by 2030. That might sound like a low probability, but the consequences for AAPL would be devastating -- likely knocking 1 or 2 trillion dollars in market cap off the stock.
2. Even if #1 doesn't happen, there's a high risk (I'd say, 75%) that Chinese demand for Apple products stagnates or declines
As Apple tries to mitigate the risk from #1 by diversifying production away from China, both the Chinese government and people will view Apple products much less favorably out of nationalist sentiment.
3. Complying with anti-trust actions around the world will take up time, money, and focus, which will impede Apple's ability to innovate and make the best possible products. This seems like a very high probability, maybe 90% that such actions are taken and, conditional on being taken, I'd say 70% chance that Apple's product innovation suffers as a result.
I don't view "AI" as a risk to Apple because I think Apple will actually do just fine -- perhaps very well -- with AI. And in general, I think Apple will do very well with the things that they can control because it's a highly effective organization. But those things they cannot control pose major risks.