Shares of tech company Apple (NASDAQ:AAPL) have been melting up to hit new all-time highs in recent weeks, thanks in part to a WWDC (Worldwide Developers Conference) event that unveiled a bit more on the firm’s AI plans. It’s not just AI and a smarter Siri that Apple has going for it, though. The company has many ambitious new products in the pipeline, many of which could help boost its spatial computing business after a slow start for Vision Pro. Despite the melt-up and jarring multiple, I must stay bullish on Apple stock.
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Undoubtedly, it’s hard to believe AAPL stock actually sunk about 2% on the day of the WWDC keynote. Either way, analysts did not take long to guide the stock higher as they unleashed a wave of bullish upgrades in response to Apple Intelligence. Perhaps a bit of guidance was what investors needed as Apple’s AI plans came to light. Moving ahead, more interesting developments may act as even more fuel for analyst upgrades over the coming 18 months.
Whether it’s worth the rich price of admission, however, remains the big question. After all, seldom has Apple stock traded above a 35 times trailing price-to-earnings (P/E) valuation multiple.
Apple’s Rich Multiple Has AI Written All Over It
At the time of writing, AAPL stock’s trailing price-to-earnings (P/E) multiple is 35.6. That’s the most expensive I’ve seen Apple shares in many years. The forward P/E of 30.9 times doesn’t look a heck of a lot better, either. Not for a stock that’s averaged a 25.3 times forward P/E multiple in the last five years.
Indeed, massive catalysts are baked into the stock right here. Most notably, an Apple Intelligence-powered iOS experience and the partnership with OpenAI to bring ChatGPT to the iPhone at no cost to Apple. Additionally, other AI server-side models (perhaps Anthropic’s Claude, Perplexity AI, or an Apple-built one) may be coming to what Apple refers to as Private Cloud Compute (PCC).
Should Apple ink deals with other AI companies, Apple users will have many options to fulfill their requests. Having options is never a bad thing!
Perhaps the only thing better than the world’s most capable large language model (LLM) at any given time is access to many LLMs and the ability to easily query each of them. Further, given how quickly AI models one-up each other in any given month, spreading one’s bets across numerous AIs seems to make the most sense.
Perplexity AI, one of the AI firms Apple was in discussions with, allows users to toggle their LLM within the platform for search purposes. Despite its small size, Perplexity seems to be the ultimate AI search disruptor.
Given the success of the relatively small firm, Apple should probably buy the company outright, if not for the AI search platform but for the talent running the show. After all, when was the last time you heard a team of 55 people that can make a behemoth like Alphabet (NASDAQ:GOOGL) sweat?
Nevertheless, with Apple’s unique AI strategy and Apple Intelligence’s personalized touch, I believe its nearly 36-times trailing P/E isn’t high enough. Early signs seem to suggest Apple is readying for an AI-induced refresh cycle for the ages, with iPhone 16 shipment plans reportedly increased to 90 million (up 11% from iPhone 15) for the year’s second half.
Don’t Forget About Spatial Computing
Vision Pro did not have a needle-moving launch earlier this year, but it was never expected to boom. Indeed, Apple seemed to have priced itself out of the running with the $3,500 price tag. Either that or the masses just aren’t ready for the most immersive mixed-reality product on the market quite yet. The good news is that expectations are essentially on the floor for Vision Pro. As enterprise customers discover the cost-saving potential in the pricy headsets while developers populate the Vision Pro App Store, things will get better for Apple’s spatial computing business.
Apart from working on a cheaper variant of Vision Pro, Apple also seems poised to bolster its visionOS with more intuitive new features. But, perhaps more importantly, Apple may be looking to release new products that act as an onramp into the realm of spatial computing.
According to analyst Ming-Chi Kuo, Apple may be getting ready to produce AirPods with infrared (IR) cameras in them by 2026. Indeed, another pair of cameras could help make the spatial computing experience that much better. Apple is a master at offering seamless experiences across its devices.
As new AirPods act as an extension of Vision Pro, Apple may just be able to provide the upgrades needed to convince the masses to buy a Vision Pro or the cheaper alternative that’s on the way.
Is AAPL Stock a Buy, According to Analysts?
On TipRanks, AAPL stock comes in as a Moderate Buy. Out of 35 analyst ratings, there are 24 Buys, 10 Holds, and one Sell recommendation. The average AAPL stock price target is $223.57, implying downside potential of 3.48%. Analyst price targets range from a low of $164.00 per share to a high of $275.00 per share.
Conclusion – Investors Should Be Comfortable Paying a Premium
Apple is firing on all cylinders on the AI front, and Wall Street’s just catching on. As Apple steadily unveils more details and updates about Apple Intelligence and its AI partner(s)—like OpenAI—in the cloud, investors should be comfortable paying a premium price tag for AAPL stock.
As Apple floors it on AI, it’s re-adjusting its spatial computing business with a cheaper model and camera-equipped AirPods to help improve the odds that a future Apple Vision device will be the hit that the first Vision Pro never was.
