4. Apple Inc (NASDAQ:AAPL)
Number of Hedge Funds Investors: 158
Erik Woodring from Morgan Stanley explained in a latest program on CNBC the reasons behind his price target cut for Apple Inc (NASDAQ:AAPL). The analyst decreased his price target for the iPhone maker to $252 from $275.
“Apple has always traded on its own paradigm. I think as an Apple analyst and knowing this stock for 10 plus years, you really have to get the fundamentals right first and then valuation second. If we made a valuation argument over the last 10 years, we would have said it was expensive. And so that’s not to say you shouldn’t take into account valuation, but the point is more let’s understand where the numbers are going. Are we seeing growth accelerate or decelerate? Are they missing numbers or are they beating numbers? At the end of the day, we still do believe growth can accelerate, just not to the same degree that we had baked in.
And so yes, we are seeing some multiple contraction, rightfully so, as some of the predictability of the model that maybe we thought was embedded is not necessarily there. That’s not to say that the multiple can’t further if there’s more concerns or rate. In the event we had more confidence in the Apple intelligence rollout. And so again, it remains a very dynamic situation here. But to directly answer the question in the near term, it’s kind of the market movements combined with the Apple-specific risks or lack of predictability in Apple intelligence that is causing some of the wind to come.”
Woodring said that the delay in Siri update for AI is likely to cause a decrease in the number of expected iPhone upgrades. This prompted the analyst to revise his estimates for Apple.
Many analysts believe that just a few AI apps would not be enough to trigger a broader upgrade cycle for iPhone. Apple is dealing with currency headwinds as the stronger US dollar is expected to reduce top-line growth by 2.5% next quarter. For Q2 FY2025, management expects overall revenue to grow in the low to mid-single digits. Apple’s stock is trading at a premium valuation, with a price-to-earnings ratio of 39-40x, a price-to-free-cash-flow ratio of 33-34x, and a PEG ratio exceeding 3x. Upcoming quarters would be difficult for Apple and its current valuation is not justified.
Columbia Seligman Global Technology Fund stated the following regarding Apple Inc. (NASDAQ:AAPL) in its Q4 2024 investor letter:
“The fund maintained a position in Apple Inc. (NASDAQ:AAPL) throughout the quarter through the release of the company’s new iPhone 16 in September. Company leaders were excited about the release of the new model, as this is the first model that will feature enhanced AI capabilities through the Apple Intelligence features. Sales for the first few weeks in October and November trailed behind year over year sales from the iPhone 15, as availability of Apple Intelligence was not compatible with all iPhone models. Apple announced a partnership with OpenAI that has allowed the integration of ChatGPT into the Apple ecosystem, separate from the core Apple Intelligence features. This partnership highlights continued progress from Apple to introduce AI capabilities into its products and we expect the iPhone 17 to have even more expansive AI capabilities, increasing potential demand for the new model that is on track to be released in 2025.”
