Apple shares initiated coverage with neutral rating

On Monday, MoffettNathanson initiated coverage on Apple Inc. (NASDAQ:AAPL) with a neutral rating, setting a price target of $211. The firm presented a comprehensive analysis of Apple's artificial intelligence (AI) strategy, comparing it to the previous 5G upgrade cycle. They highlighted several challenges Apple may face in replicating the success of the 5G cycle, particularly in international markets due to regulatory and geopolitical hurdles.

The report indicated that Apple's current valuation is significantly higher than it was during the 5G cycle, which could be a concern given the current environment of higher interest rates. This situation demands even greater growth rates for Apple to justify a similar market multiple.

MoffettNathanson also pointed out the potential risks from ongoing antitrust litigation against Google (NASDAQ:GOOGL), which could impact the revenue Apple receives for making Google the default search engine on its devices.

Despite some estimates being above consensus, the report suggested that the optimism reflected in Apple's share price might exceed what is indicated by sell-side consensus. The price target of $211 is based on a detailed discounted cash flow (DCF) analysis, assuming an 8.25% weighted average cost of capital (WACC) and a 4.5% terminal growth rate.

MoffettNathanson's analysis raises concerns over whether the anticipated AI-driven iPhone upgrade cycle can achieve the heights of its 5G predecessor.

The firm's neutral stance indicates a cautious approach to Apple's stock, acknowledging the company's strong market position while also considering the various challenges and risks it faces. The price target reflects a balanced view of Apple's future growth prospects and market valuation.

Apple Inc. continues to dominate the AI PC market with a 60% share, according to Canalys. This comes amid the launch of the Epic Games Store on iOS within the European Union, a move Goldman Sachs believes will have minimal impact on Apple's business.

Meanwhile, TikTok is challenging the US Department of Justice over a forced sale, asserting that their user data and content recommendation algorithm are securely stored on U.S.-based Oracle (NYSE:ORCL) cloud servers.

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