Apple (NASDAQ:AAPL) the stock has finally joins the race for artificial intelligence (AI).
Announcement of a merger with OpenAI Earlier this month, the iEverything giant announced that it would integrate ChatGPT artificial intelligence into future high-end models of its iPhones, iPads and Mac computers. The stock has already risen about 9% in response to the news, and according to wealth management firm Bernstein, Apple could be worth even more.
On Friday, Bernstein raised his price target on Apple stock to $240 per share, implying a 15% price gain over the next 12 months.
Is Apple stock a buy?
Bernstein sees four ways Apple could benefit from the AI ​​megatrend:
Since older iPhones won’t be able to run AI on the device, users will have to purchase newer, more expensive Apple devices. For every 1% acceleration in the upgrade cycle, Bernstein calculates that Apple’s revenue will increase by 1.8%.
Apple should be able to increase high-margin advertising revenue through AI searches on these new iPhones.
AI apps downloaded to these new iPhones will drive high-margin app sales.
With Apple serving as the custodian of these apps, it will generate commissions from e-commerce with these apps.
So far, so good. But this is where Bernstein’s Apple logic gets weird.
Bernstein raised his price target by $45 to the new target of $240 and continues to recommend buying Apple at $209 per share. Granted, Bernstein’s old goal was only $195, so he had to raise its price target somewhat to justify the recommendation of the shares. But Bernstein admits that even at the current price of $209, Apple stock is already “not cheap anymore.”
And Bernstein is right. Apple stock already costs more than 32.5 times current earnings, as well as 32.5 times free cash flow. But most analysts estimate its profits will grow more slowly than 12% a year over the next five years, even with the boost from “Apple Intelligence” — assuming that boost even materializes.
Bernstein is right that Apple stock is expensive. It’s wrong to tell investors to buy Apple stock right now.
Should you invest $1,000 in Apple right now?
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Rich Smith has no position in any of the stocks mentioned. The Motley Fool holds positions at Apple and recommends it. The Mad Motley has a disclosure policy.
Will Apple stock hit $240? 1 Wall Street analyst thinks so. was originally published by The Motley Fool
