Why analysts are bullish on Apple despite China headwinds

Apple (AAPL) stock has been depressed amid concerns about slowing sales in China, with the stock down nearly 9% since the beginning of the year as of Tuesday’s close, but analysts also say headwinds in China may be a cause for concern. Regardless, he says he is bullish on the stock price. Reasons they cited include pent-up demand for the iPhone, increased App Store revenue, and artificial intelligence (AI) announcements expected in June.

Accumulated iPhone demand before and after the upgrade cycle

Wedbush analysts said Monday that this could be a “tough” quarter for Apple, with competition from Chinese rivals such as Huawei, as well as a weakening Chinese economy and geopolitical headwinds. He said he expects iPhone sales in China to decline year-on-year, weighing on Apple. sale.

However, after a recent trip to Asia, Wedbush analysts said supply chain data supports a better-than-expected outlook for the region, and that other regions such as Europe and India are reflecting weakness in Apple’s China sales. He said he believed it could help make up for it. Apple CEO Tim Cook will also visit China again in March as he looks to strengthen supply chains and relationships with consumers there ahead of the iPhone 16 launch later this fall, the company said. It pointed out.

Analysts suggested that pent-up demand around the upgrade cycle could exceed 270 million iPhones and that Apple could see a “resurgence in growth heading into the September quarter and FY2025.” .

App Store revenue growth promotion service

The bright spot for Apple continues to be the services sector, which Wedbush analysts say “remains solid with double-digit growth.”
” Bank of America analysts, citing Sensor Tower data, estimate that Apple’s App Store will generate $7.4 billion in revenue in the second quarter of 2024, up from $6.7 billion in the same period last year. ing.

Analysts at Bank of America expect Apple’s services segment revenue to increase 11% year-over-year in the fiscal second quarter, and “we view the resilience of the services segment as a long-term bullish indicator.” “There is,” he added.

In its fiscal first quarter earnings call earlier this year, Apple announced that its services division achieved a record $23.1 billion in revenue, up from $20.7 billion in the same period last year. The company’s installed base of devices also hit a record 2.2 billion, which could fuel further service growth.

AI announcement scheduled for June

Apple is lagging behind its Magnificent Seven peers in its rush to monetize AI. However, an announcement related to the company’s AI plans is likely to be made at the annual Worldwide Developers Conference (WWDC24) on June 10th.

Cook said during the company’s first-quarter earnings call in February that the company is working on an AI project “that we’ll talk about later this year,” and that Apple is widely expected to announce details at WWDC24.

Wedbush analysts cite potential AI advances as a key reason for their bullish stance. Bank of America analysts also said they expect Apple could benefit from a multi-year upgrade cycle with generative AI.