Apple: Piper Sandler warns AI optimism is already priced into the stock

Apple shares (NASDAQ:AAPL) have surged over 30% since early April, notably outpacing the S&P 500's gain of just over 5%, driven by excitement around Apple Intelligence and a potential rebound in iPhone shipments in China.

According to {{0|Piper Sandler}} analysts, this excitement is justified, given AI’s potential to drive significant upgrades. Moreover, renewed growth in iPhone sales in China could provide a boost in the second half of the year.

“However, given the current valuation and the growing risk of a consumer spending headwind, we feel like a lot of good news is already priced into the stock,” analysts cautioned in a note.

They reiterated a Neutral rating on the stock but lifted the price target from $190 to $225.

Last month, the iPhone maker unveiled Apple Intelligence, the company’s personalized artificial intelligence offering. The company said Apple Intelligence will be included in the upcoming OS updates for the iPhone 15 Pro and Pro Max, scheduled for release in Fall 2024.

“We’ve been hesitant on consumer use-cases for AI to-date,” Piper Sandler's note states.

“From our perspective, we certainly see a scenario where Apple Intelligence drives a “super cycle,” but we aren’t ready to ascribe a "super cycle" as a base case as the recent stock move might suggest.”

Moreover, analysts also said that while some may argue that an iPhone is “a must-have,” slowing consumer spending due to inflation could weaken demand and dampen excitement for Apple Intelligence during the upgrade cycle.