Apple Inc (NASDAQ:AAPL, ETR:APC) shares are currently priced at an attractive entry point for investors seeking to gain exposure to the technology giant, analysts at Bank of America believe.
“Apple shares are down 20% in the year to date versus the S&P 500 index up 1%, a divergence gap that we argue will close over time,” analysts wrote in a note discussing the bull and bear cases for Apple.
They maintained their ‘Buy’ rating and $235 price target, implying upside from Apple’s share price of about $201 on Monday afternoon, citing resilient earnings, strong capital returns and optionality to monetize incremental avenues of growth.
The bull case
The bullish thesis on Apple revolves around its durable ecosystem, expanding installed base, and ability to unlock new growth avenues through research and development, Bank of America wrote.
“We see multiple avenues for revenue and margin growth,” the analysts write, highlighting opportunities in advertising, AI services, finance, health, robotics, autonomous projects, and media.
Even with short-term noise, Apple maintains a remarkably strong financial foundation, they wrote. The company holds $35 billion in net cash and short-term investments and generates roughly $100 billion in annual free cash flow.
“Apple, while not exactly 'cheap' remains an investment with many avenues for revenue and margin growth with continued strong free cash flow and shareholder returns,” analysts wrote.
Further, Apple’s Services segment is poised to benefit from the growing installed base. Analysts see long-term margin improvement through vertical integration and a premium product mix, with “low risk of negative surprises or estimate cuts.”
On valuation, the analysts wrote that “Apple shares are trading closer to 25 to 27x forward earnings, which is on the lower side of post-2020 valuation range.”
Given Apple's stability and potential upside from underappreciated service-related total addressable market in an AI-driven environment, this valuation could be considered conservative, they added. “Apple's risk profile is lower than most companies, which supports a higher multiple,” they wrote.
The bear case
The bearish view on Apple is not without merit, the analysts noted, citing a set of regulatory headwinds and peaking revenue and gross margins.
“Where will the next leg of growth come from, and indeed, what is the 'next big thing'?” they wrote.
Critics also argue Apple has fallen behind in the AI race, and tariffs and moving supply chains also pose risks.