Apple stock: BofA breaks down key topics in bull vs. bear market debate

Investing.com -- Bank of America (BofA) analysts have outlined both bullish and bearish arguments in the ongoing debate over Apple’s (NASDAQ:AAPL) long-term investment case, highlighting what they describe as a gap between the company’s fundamentals and current investor sentiment.

Apple shares (NASDAQ:AAPL) are down 20% year-to-date, compared to a 1% rise in the S&P 500, and BofA maintains a Buy rating with a price objective of $235, citing strong free cash flow (FCF), shareholder returns, and potential for long-term growth.

"We see Apple’s ecosystem and brand as key competitive advantages, with ability to open up new addressable markets through its deep R&D investments,” BofA analysts led by Wamsi Mohan said in a Monday note.

Despite its scale, strong FCF, Apple remains underweight at many hedge funds, BofA notes.

On the bear side, BofA lists several structural concerns, including a lag in AI execution, growing regulatory risks, and potential hits to high-margin businesses like the App Store and Google (NASDAQ:GOOGL) search revenue.

The note highlights that Apple’s gross margins may have peaked and are starting to erode due to “tariffs, inflation, supply chain shifts,” while product trends have begun exerting downward pressure.

Critics also point to Apple’s slower rollout of generative AI features and repeated delays on key initiatives like augmented reality (AR) glasses, raising fears about “execution concerns (especially in AI).”

The DOJ’s antitrust case against Google also looms over Apple’s Services segment, which benefits from the $20 billion-plus it receives annually from Google for search default placement.

“Apple’s reliance on Google’s search payments has become a material vulnerability,” the analysts emphasized.

Moreover, bears highlight China as a growing area of concern. BofA notes that Apple faces “production risks, local competition, and softening demand” in the region, which remains a critical market for both sales and manufacturing.

The firm underscores that China accounts for a significant portion of App Store revenue—second only to the U.S.—and that increasing scrutiny from Chinese regulators, alongside intensifying competition from domestic brands, could pressure Apple’s performance.

Geopolitical tensions and shifting consumer sentiment further complicate the outlook, posing a potential drag on revenue and profitability.

Still, BofA argues that Apple retains a low risk of negative earnings surprises, benefits from a growing installed base, and has optionality in areas like AI, advertising, and health.

The bank’s team thinks that Apple can still dominate “AI at the edge” through on-device experiences, and that the stock’s current valuation—around 25–27x forward earnings—is relatively attractive given the company’s lower risk profile.

"The market is not completely valuing the Services opportunities including the significant TAM expansion in an AI-driven world,” the analysts wrote.