Apple’s shares could be much higher, says Third Point CEO

Third Point believes that the demand for AI can greatly increase Apple’s revenue and earnings in the coming years.

Apple (AAPL) unveiled a preview of its “Apple Intelligence” AI feature in July. This feature could help improve Siri, automatically generate emails and images, and sort notifications. However, the release only includes a partial set of features, not the full suite.

The AI ​​system will debut in October after the release of iOS 18, according to Bloomberg. Apple also says it will release more AI features, including image and emoji generation, automatic photo cleanup, and integrated ChatGPT over the next year.

“Despite strong recent stock appreciation, we see room for significant upside going forward as the scale of this new AI opportunity captures,” Third Point CEO Daniel Loeb said in an Aug. 23 letter to investors.

Apple CEO Tim Cook said the company will “continue to make significant investments” in Apple Intelligence technology during the August earnings call. “We are very excited about Apple Intelligence and remain incredibly optimistic about the extraordinary possibilities of artificial intelligence.”

Third Point said Apple was one of the top five gainers in its portfolio for the second quarter.

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Apple expects strong revenue growth for the September quarter

Apple reported solid fiscal third-quarter earnings on August 1. The company earned $1.40 per share ahead of the consensus estimate of $1.35. Apple’s revenue of $85.78 billion, up 4.9 percent from a year ago, beat estimates of $84.53 billion. It was also a record performance in the third quarter.

Apple’s biggest business remains the iPhone. iPhone revenue was $39.30 billion, down 1 percent from a year ago but beating the analyst estimate of $38.81 billion. It represents about 46% of the company’s sales. A new iPhone model is coming this fall.

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The iPad segment showed the strongest growth, with sales up nearly 24% year over year to $7.16 billion. About half of iPad buyers were first-time buyers, indicating that the tablet market is not yet saturated, according to Apple CFO Luca Maestri.

Apple’s sales in Greater China, including Taiwan and Hong Kong, fell 6 percent to $14.72 billion as local rivals pressured sales.

Apple expects revenue for its fiscal fourth quarter to grow year over year at a similar rate to the June quarter, Maestri said in the earnings call. Revenue growth for the fiscal third quarter was about 5%.

Third Point says Apple shares are “under-owned” by institutions

Third Point began buying Apple shares in April, and the tech giant was one of the top five gainers in its portfolio for the second quarter. Apple shares have gained about 23% over the period.

“Despite Apple’s dominance as a business, its stock has become increasingly ‘underowned’ by institutional investors, and its relative multiple has compressed to a multi-year low,” Loeb said, citing “several years of growth stagnant earnings” and concerns that Apple could become an “AI loser”.

“Our research has led us to a different conclusion: We believe that AI-related demand could lead to a gradual improvement in Apple’s revenue and earnings over the next few years,” he added.

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The hedge fund’s flagship Offshore fund returned 1.8 percent in the quarter ended June 30, underperforming the S&P 500’s 4.3 percent gain over the same period.

The company said the growth was “largely driven by technology companies”, but diversification into other sectors such as industrials, consumer and healthcare partially offset the gains. Its biggest losers were Bath & Body Works (BBWI) Advance Auto Parts (AAP) Ferguson PLC, Airbus SE and payments company Corpy, formerly Fleetcor.

Analysts revised their price targets for Apple stock after earnings and outlook.

Citi raised its target on Apple to $255 from $210 and maintained a buy rating after seeing Apple’s “beat and lift” financial results. The analyst was encouraged by early positive feedback on Apple’s new iOS 18 Intelligence features and management’s belief that AI will drive substantial iPhone upgrades.

Goldman Sachs also raised its price target on Apple to $275 from $265 and maintained a buy rating. The analyst believes that Apple is approaching a multi-year iPhone replacement cycle.

More Wall Street analysts:

• Analysts reset price target on Grand Theft Auto maker’s stock
• Stock market analyst American Express signals the change in consumer behavior
• Analyst resets Nvidia stock price target ahead of earnings

“The company reported a solid decline in iPhone-driven earnings in the fiscal third quarter with continued momentum from Services,” the analyst told investors in a research note.

Barclays analyst Tim Long cut his target for Apple to $186 from $187, with an underweight rating.

“The 3Q fiscal print was better than expected, led by the iPad, and the 4Q revenue estimate was a slight beat to the Street, though slightly lower than the Barclays estimate,” Long wrote. He was, however, concerned about sales in China, regulatory risks and uncertainty over iPhone 16 sales and AI features.

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