BofA reiterates ‘Outperform’: Will Apple stock finally break above $200?

on May 29, 2024
  • BofA reaffirms 'Outperform' rating on Apple stock.
  • WWDC 2024 eagerly awaited for AI strategy, innovation announcements.
  • Watch for weekly close above $200 for confirmation of fresh bull run.

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Bank of America reaffirmed its ‘Outperform’ rating on Apple Inc (NASDAQ:AAPL) today, anticipating a surge in momentum with the tech giant’s imminent unveiling of its generative artificial intelligence strategy at the upcoming developer conference. Analysts at BofA predict that the integration of AI into the latest iPhones could spark a significant upgrade cycle akin to the dawn of the smartphone era.

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Recent developments & analysts’ insights

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Adopting a discounting strategy, Apple witnessed a notable uptick in iPhone shipments, particularly in China, where April saw a staggering 52% surge in shipments. This comes as local competitors vie for market dominance, with Apple strategically slashing prices and unveiling discounts to maintain its competitive edge. Despite recent challenges, supply chain checks hint at iPhone stabilization, laying the groundwork for a potential resurgence in demand.

On May 26th analysts at Wedbush Securities released a note in which they underscored the significance of Apple’s upcoming iPhone 16 launch, projecting a bullish outlook on iPhone builds and anticipating a notable uptick in upgrade cycles. According to them with a robust services ecosystem and continued innovation, Apple remains well-positioned to weather market shifts and capitalize on emerging trends.

Apple’s relentless focus on innovation is evident in its commitment to R&D spending and product launches, such as the recent unveiling of the powerful iPad Pro and upcoming WWDC 2024 conference. The integration of generative AI capabilities into iOS and hardware underscores Apple’s forward-thinking approach and positions the company for sustained growth.

Earnings and valuation analysis

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Apple’s fiscal second-quarter results surpassed expectations, with the company unveiling a substantial $110B buyback program. Despite a dip in revenue, adjusted EPS expanded, showcasing resilience amidst market challenges.

While growth has moderated, Apple’s current valuation reflects a reasonable midpoint, trading at a 7.7x sales multiple and a 29.4x earnings multiple. Furthermore, with an additional $110 billion allocated to buybacks, Apple presents a compelling value proposition for investors.

Despite its strengths, Apple faces risks such as a continued slump in iPhone sales growth and macroeconomic factors impacting consumer spending. Additionally, while Apple’s valuation appears reasonable compared to historical multiples and peers, fluctuations in market multiples pose a potential risk to future returns.

As investors await Apple’s next move, technical analysis might offer insights into the stock’s potential price movements. By analyzing price action and volume trends, investors can gauge potential entry and exit points, guiding investment decisions amidst market volatility.

The $200 question: Can Apple finally break above it?

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Apple’s long-term uptrend, which has delivered a fivefold return since the start of 2019, remains strong. Although it appeared in 2022 that this upward trend might falter, the stock’s resurgence in the first half of 2023 dispelled those concerns. Over the past year, Apple’s stock has mostly traded within the $165-$198 range, with two unsuccessful attempts to break above $200.

AAPL chart by TradingView
Recently, the stock has shown a strong rebound, climbing from around $165 to over $190 since mid-April, indicating that bullish sentiment currently dominates. However, whether this marks the beginning of a new bull run will only be confirmed if the stock achieves a weekly close above $200. If this happens, bullish investors could consider buying the stock with a stop loss set at $178.6.

For those with a bearish outlook on Apple, there is a low-risk, high-reward trading opportunity. They can short the stock above $192 with a stop loss at $201.2. If Apple’s stock loses its medium-term bullish momentum, it could fall back to its support level near $165, where bearish traders could book profits.

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