Cupertino-based tech giant Apple Inc. (NASDAQ:AAPL) has long been a leader in innovation, yet it found itself trailing in the artificial intelligence (AI) race. As AI became the tech industry’s focal point, Apple’s efforts appeared lackluster compared to rivals like Microsoft (NASDAQ:MSFT), which aggressively embraced this transformative technology.

Fiscal 2023 marked a rare setback for Apple, with negative revenue growth across all four quarters—a first since the pre-iPhone era of 2001. Meanwhile, its FAANG peers soared, rebounding from the 2022 market crash and regaining investor confidence. Faced with intense competition in the smartphone market and perceived shortcomings in AI, several high-profile analysts downgraded AAPL stock at the start of the year.

However, despite the initial skepticism, the tide is turning. Wall Street analysts are beginning to warm up to AAPL again, with growing optimism about the tech giant. Here’s a look at what’s driving this renewed bullish sentiment.

About Apple Stock

Founded in 1976, Apple Inc. is a leader in tech innovation. With a staggering market cap of $3.5 trillion, this powerhouse consistently redefines technology standards with its iconic products, such as the iPhone, iPad, Mac, AirPods, Apple Watch, and the revolutionary Apple Vision Pro.

In addition to its impressive array of tech products, Apple recently made its long-awaited entry into the AI landscape with “Apple Intelligence.” This strategic move propelled the stock to unprecedented levels, reaching a new all-time high of $237.23 on July 15, fueled by bullish analyst notes regarding Apple’s AI ambitions.

After starting the year as a significant underperformer among its Big Tech peers, AAPL stock is back on positive ground on a year-to-date basis. The stock has now rallied 16.7% since the start of 2024, closing its performance gap with the broader S&P 500 Index ($SPX).

Shareholder Rewards

With a decade-long streak of increasing dividends, Apple remains committed to rewarding its shareholders. On May 16, the tech giant announced a 4% increase in its quarterly dividend to $0.25. Its annualized dividend of $1.00 offers a 0.44% yield. Apple also announced a historic $110 billion share buyback plan alongside its Q2 earnings, setting a new record.

Valuation Perspective

From a valuation standpoint, AAPL stock trades at 35.56 times forward earnings, roughly in line with Microsoft but lower than other “Magnificent Seven” giants such as Nvidia Corporation (NASDAQ:NVDA) and Amazon.com (NASDAQ:AMZN).

Apple Beats Q2 Earnings Projections

Following the company’s fiscal Q2 earnings report on May 2, which exceeded Wall Street’s expectations on both the top and bottom lines, Apple shares jumped almost 6% in the subsequent trading session. The tech giant reported revenue of $90.8 billion for the quarter, reflecting a 4.3% decrease from the same period last year but slightly above the consensus estimate of $90.5 billion.

This continued revenue decline is largely due to a significant 10% year-over-year drop in iPhone sales, indicating weakened demand for Apple’s latest smartphone model launched last September. The company posted EPS of $1.53, surpassing estimates by a 1.5% margin.

Reflecting on the Q2 performance, CFO Luca Maestri said, “Thanks to very high levels of customer satisfaction and loyalty, our active installed base of devices has reached a new all-time high across all products and all geographic segments, and our business performance drove a new EPS record for the March quarter.”

Looking ahead to Q3, management forecasts total revenue growth in the low single digits year over year, while the services business is expected to deliver double-digit revenue growth. The company is expected to report its fiscal Q3 earnings results on Thursday, August 1.

AI Breakthrough

On June 10, Apple joined the AI race by unveiling “Apple Intelligence” at the Worldwide Developers Conference (WWDC). This initiative integrates ChatGPT from OpenAI to enhance iPhone virtual assistant Siri’s functionality, a significant step in Apple’s bid to catch up with AI leaders like Microsoft and Alphabet (NASDAQ:GOOGL).

The upcoming software updates promise to revamp Siri with enhanced capabilities and a more engaging persona, and introduce creative tools such as real-time emoji creation, dubbed “Genmojis.”

Analysts are closely watching Apple’s move into on-device AI, looking for the rollout to spark a much-needed uptick in iPhone sales when new models are expected to launch in September.

Analysts’ Expectations for Apple Stock

Despite the initial skepticism surrounding AAPL stock earlier this year, the company’s strategic announcement of an AI-enabled smartphone has significantly boosted analyst confidence. On July 15, Morgan Stanley (NYSE:MS) listed the company as a “top pick” and raised its price target to $273.

According to Morgan Stanley, Apple is set to embark on a record-breaking multi-year upgrade cycle fueled by the introduction of Apple Intelligence. Supported by the company’s AI efforts, Morgan Stanley analysts foresee Apple potentially selling close to 500 million iPhones in the next two years.

Additionally, on the same day, Loop Capital analyst Ananda Baruah awarded AAPL a “Buy” rating and set a price target of $300, marking a new Street-high target for the stock. The analyst sees Apple becoming the preferred hub for generative AI, echoing its historical prowess in capturing market trends with products like the iPhone and iPod.

Overall, AAPL stock has a consensus “Moderate Buy” rating. Of the 30 analysts covering the stock, 20 advise a “Strong Buy,” three say it’s a “Moderate Buy,” six have a “Hold” rating, and one recommends a “Strong Sell.”

This optimistic consensus marks a notable shift from three months ago, with the percentage of “Buy” or better ratings increasing from 66% to 76%.

Although the stock currently trades nearly flat with its average analyst price target of $224.09, Loop Capital’s Street-high target of $300 suggests that AAPL could rally as much as 33.6% from current levels.

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