Apple stock is thriving thanks to AI. Will it last?

Apple has officially turned a corner. In early 2024, the tech giant struggled to make smartphone sales abroad, was slapped with a big antitrust lawsuit from the Department of Justice, and its stock market performance was lackluster. But since unveiling its AI strategy in early June. Apple’s stock price has been on the up-and-up. The question is: will its good fortunes continue?

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The tech giant’s stock price is up nearly 13% from last month and about 24% from three months ago. Apple launched its AI project called Apple Intelligence at its Worldwide Developers Conference on June 10, and investors have been largely exuberant ever since (save for a brief dip the week of June 17). The company is also outperforming other tech stocks and the stock market overall. Apple bulls are also likely encouraged by its recovering iPhone sales in China.

Some analysts say Apple will continue to bask in AI-infused glory; others think an AI-fueled bubble will burst and bring its beneficiaries down with it.

The case for Apple dominance

Analysts say Apple will surge to a $4 trillion market capitalization this year, racing its rival Microsoft and its AI chip supplier Nvidia for a seat as the world’s most valuable company. Bank of America analyst Wamsi Mohan says Apple is poised to dominate a new era of AI-powered smartphones.

Apple will also benefit from partnerships with rivals who produce more advanced AI chatbots. CEO Tim Cook already announced a partnership with OpenAI to put ChatGPT on the next iPhone, iPad, and Mac operating systems. And the company said it plans to add Google’s Gemini.

Doubters say Apple could be a victim of an AI bubble

Seeking Alpha’s Bohdan Kucheriavyi said Friday that “it makes sense to believe that Apple’s shares could’ve entered a bubble territory since the number of challenges that the company faces continues to increase, while the business’s entrance into the generative AI field doesn’t guarantee successful mitigation of major risks.”

Apple’s partnership with OpenAI could expose it blowback on several fronts, as OpenAI faces privacy concerns and lawsuits over alleged copyright infringements. Elon Musk threatened to ban Apple devices at his companies over security and privacy issues. Apple’s AI initiative will also take a while to pay off. While Microsoft’s and Google’s AI tools are already boosting sales at the two companies, Apple won’t benefit from AI-related sales for “years,” Bloomberg’s Mark Gurman wrote in a June newsletter.

Not to mention that some think Google’s AI is better, which could threaten Apple’s stock surge. Morgan Stanley analysts said after the 2024 WWDC that they think Google’s generative AI offerings for Android make it a stronger product than Apple’s iOS 18 update, its primary product that stands to benefit from AI. If Apple’s AI updates to the iPhone fall behind Google’s, Apple would lose its edge.

By the numbers

32.38: Apple’s forward price-to-earnings ratio, compared to the industry’s average of 11.63. This means Apple’s stock price is high relative to earnings and may be overvalued.

23.58%: How much Apple’s stock price is up from 3 months ago as of Friday, June 28.

$3.28 trillion: Apple’s market capitalization, which Wedbush analyst Dan Ives thinks will rise to $4 trillion next year.

$214: Apple’s stock price on June 28, which is just $6 away from the highest stock price the company’s hit over the last year. Apple’s 52-week high is $220.

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