Bernstein Upgrades Apple, Sees 15% Upside to $195

Key Takeaway

• Bernstein upgrades Apple to outperform with a $195 price target, seeing a 15% upside after a 12% decline this year.
• Upgrade driven by cyclical challenges in China, potential from iPhone 16 cycle, and low Q2 expectations offering a buying opportunity.
• Positive tech sector momentum noted, with Apple shares up 2.0% post-upgrade and broader insights on Bitcoin ETF inflows and Tesla's surge.

Apple's Strategic Position

Bernstein upgraded Apple to outperform from market perform, maintaining a $195 price target, which implies a 15% upside potential. This upgrade comes after Apple's shares experienced a 12% decline this year, underperforming against the S&P 500's 6.9% gain. The decline was attributed to concerns over iPhone 15 sales and Apple's performance in China amidst government restrictions. Bernstein's analyst Toni Sacconaghi highlighted Warren Buffett's investment strategy in Apple, noting his discipline in buying when the stock is relatively cheap and trimming when it's expensive. Currently, Apple trades at a price-earnings ratio of 26.4 based on its 2024 earnings estimate and 22.9 times its 2025 estimate, which is within the range Buffett prefers for buying.

Reasons Behind the Upgrade

Sacconaghi provided several reasons for the upgrade, including the belief that Apple's challenges in China are more cyclical than structural. He also mentioned potential tailwinds from replacement cycles and the introduction of generative AI features as factors that could drive a strong iPhone 16 cycle. The note, titled "Buy the fear," suggests that low expectations for Apple's Q2 results and the historical performance of Apple's stock ahead of new iPhone launches present a buying opportunity. Bernstein expects the iPhone 16 to be released in September and notes that Apple's stock has historically outperformed in 15 of the last 17 periods ahead of an iPhone launch.

Bitcoin ETF and Tech Sector Performance

Bernstein also commented on the broader tech sector, including insights on Bitcoin ETF inflows and the performance of tech giants in pre-market trading. The firm views the slowdown in Bitcoin ETF inflows as a temporary pause, predicting a surge to $150,000 by 2025 due to increased integration with platforms and unprecedented demand. In the tech sector, Apple and Tesla saw pre-market gains, with Apple up 2.0% following the upgrade and Tesla surging 9.5% due to a new partnership. This positive momentum in tech stocks contrasts with challenges in other sectors, such as the downgrade of Southwest Airlines, highlighting the diverse dynamics at play in the market.

Street Views

• Toni Sacconaghi, Bernstein (Bullish on Apple):

  "Despite his reputation as a long term buy and hold investor, Warren Buffett has been remarkably disciplined at adding to his Apple position when it is relatively cheap and trimming when it is relatively expensive... We would encourage investors to follow suit, adding to positions on Apple when the multiple is 25x earnings or below, and trimming at 30x+." "We believe prevailing weakness in China is more cyclical than structural, and note that historically Apple’s China business has exhibited much higher volatility than Apple overall, given its very feature-sensitive installed base... We further believe that replacement cycle tailwinds and incremental generative AI features set up Apple well for a strong iPhone 16 cycle." "Tactically, expectations are low entering Q2 results, with ~$80B in revenue guidance for FY Q3 (vs. consensus of $83.4) seemingly the bogey."