Apple stock could rally from here on iPhone AI updates – Analysts

© Reuters.

Apple (NASDAQ:AAPL) stock has had a tough 2024. Despite its more recent move higher, shares of the iPhone maker are still down around 4.5% in the year, trading above the $178 mark. Apple’s shares have experienced weakness due to several contributing factors.

The reported decline in iPhone sales, particularly in the Chinese market, has raised concerns among investors. Additionally, regulatory pressures have mounted, with Apple facing a fine from the European Union over antitrust allegations and potential antitrust lawsuits from the US Justice Department.

Analysts have also expressed concern about Apple’s position in artificial intelligence (AI) compared to its tech counterparts, further impacting investor sentiment. These factors, combined with increasing competition in China from Huawei, have led to its share price decline.

Citi sees AI as the next catalysts

In a note Thursday, Citi analysts noted the recent report from Bloomberg that the DOJ is poised to sue Apple on antitrust violations as soon as March 21 based on how the company uses itsother products and services to keep customers within its ecosystem.

The US Justice Department is said to be poised to sue Apple, alleging violations of antitrust laws by blocking rivals from accessing hardware and software features of its iPhone.

“As we noted, regulatory risk is a key overhang for Apple with multiple antitrust cases around its rising Services business and pushbacks on its recently announced changes on App Store rules,” said Citi.

However, focusing on the positive side, the investment bank cited that alongside Apple’s multiple internal developments of AI, recent reports state Apple is in talks with Google (NASDAQ:GOOGL) to build its Gen-AI powered Gemini models into iPhones, while it is also said to have had similar discussions with OpenAI. Investors are watching how Apple may integrate AI into its technology.

Apple is reportedly in “active negotiations” with Google, according to a Bloomberg report. The report states that AI features in Apple’s products could ultimately be powered by a combination of first- and third-party AI models.

Citi said it believes Gemini Nano could be a good use for on-device AI.

“While we don’t expect anything official to be announced before WWDC, we view AI as the next upside catalyst driven by AI smartphone adoptions,” said the firm, which maintains a Buy rating and a $220 price target on the stock.

BofA is also positive on Apple, maintaining a Buy rating and $225 price target on the stock in a recent note. They stated that “despite slower unit sales, Apple has been able to drive the mix of units to higher value.”

This, in their opinion, will continue as a long-term trend, “thereby offsetting some of the potential unit weakness in China.”

“Apple dominates the $1,000 and above price band with a consistent ~90%+ market share for the last three years. Maintain Buy given multi-year iPhone cycle driven by GenAI, strong services growth, and margin expansion,” concluded the firm.