Apple (NASDAQ: AAPL) stocks have finally joined the artificial intelligence (AI) race.
The iEverything giant announced a partnership with OpenAI earlier this month and said it will integrate ChatGPT’s artificial intelligence into future high-end models of its iPhones, iPads and Mac computers. The stock is already up about 9% in response to the news, and according to asset management firm Bernstein, Apple could be worth even more.
On Friday, Bernstein raised his price target for Apple stock to $240 per share, implying a 15% upside over the next 12 months.
Are Apple shares a buy?
Bernstein sees four ways Apple could benefit from the AI megatrend:
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Since older iPhones can’t run AI on the device, people will have to buy newer, more expensive Apple devices. For every 1% acceleration in the upgrade cycle, Bernstein estimates that Apple’s revenue will grow by 1.8%.
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Apple should be able to increase high-margin ad revenue from AI search on these new iPhones.
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AI apps downloaded on these new iPhones will drive high-margin app sales.
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Because Apple acts as a gatekeeper for these apps, the company will generate commission income from e-commerce with these apps.
So far, so good. But here’s where Bernstein’s Apple logic gets strange.
Bernstein raised his price target by $45 to a new target of $240 and continues to recommend buying Apple at $209 per share. Granted, Bernstein’s old target was only $195, so that’s true had to raise its price target slightly to justify recommending the stock. But Bernstein admits that even at its current share price of $209, Apple shares are already “no longer cheap.”
And Bernstein is right. Apple shares already cost more than 32.5 times earnings, and also 32.5 times free cash flow. But most analysts expect earnings growth to be slower than 12% per year over the next five years, even with the boost from “Apple Intelligence” – assuming that boost even materializes.
Bernstein is right when he says that Apple shares are expensive. It’s wrong to tell investors at this point to buy Apple stock.
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Rich Smith has no position in any of the stocks mentioned. The Motley Fool holds and recommends positions in Apple. The Motley Fool has a disclosure policy.
Is Apple Stock Going to $240? 1 Wall Street analyst thinks so. was originally published by The Motley Fool
