In the midst of a wave of skepticism, there is a contrarian optimism! Bank of America has upgraded Apple's rating and predicts that the stock price will rise by more than 20%.

In the midst of skepticism on Wall Street, Bank of America has given a thumbs up to Apple's prospects and even predicts a significant increase in its stock price.

On Thursday, January 18th, Bank of America analyst Wamsi Mohan released a report upgrading Apple's rating from neutral to buy, and significantly raising the target price from $208 to $225, an increase of 8.2%. This target price implies that Bank of America expects Apple's stock price to have more than a 20% upside potential, surging by approximately 23% from the closing price on Wednesday, and reaching a new high not seen in the past month.

Following the release of Bank of America's report, Apple's stock price opened high and continued to rise throughout the day, reaching above $189 at one point during the afternoon session. It experienced an intraday gain of over 3.5%, hitting the highest level since December 29, 2023. Ultimately, it closed with a gain of approximately 3.3%, setting a new closing high since December 29th and erasing all the losses incurred since the beginning of 2024, reversing the downward trend of the previous two days.

In the report, Bank of America analyst Mohan is optimistic about Apple's long-term performance outlook. He expects artificial intelligence (AI) and mixed reality technologies, including augmented reality (AR) and virtual reality (VR), to drive Apple's performance in the future. He believes that AI and the upcoming mixed reality headset, Vision Pro, will provide upward momentum for Apple's hardware and services business.

Vision Pro is available for pre-order starting this Friday and will be launched on February 2nd with a price tag of $3,499. Ming-Chi Kuo, the "prophet" of Apple and an analyst at TF International Securities, stated in an article last week that Vision Pro has a stock of only 60,000 to 80,000 units. Considering the novelty of the product and the loyalty of Apple fans, he believes that Vision Pro will easily sell out once it hits the market.

However, Kuo also pointed out that Vision Pro only showcased its technology last year without revealing its important product positioning and key applications. If Vision Pro fails to sell out instantly, it may fall short of expectations and impact Apple's stock price as well as the stock prices of companies in the supply chain.

In Thursday's report, Bank of America analyst Mohan predicts that Apple's multi-year upgrade cycle will be even stronger "because the latest hardware is needed to realize the generative AI capabilities to be launched in 2024/2025." He points out that most of Apple's installed base is using the iPhone 11 and believes that the expectation for AI capabilities may "prompt institutional investors to increase their positions in Apple." Since Mohan downgraded Apple's rating to neutral in September 2022, Apple's stock price has lagged behind the S&P 500 index by about 6 percentage points. Mohan pointed out that Apple's relative multiple to the S&P has fallen to 1.3 times, below previous levels.

Mohan's report states that considering Apple's business shift towards services and strengthened vertical integration, it is expected that Apple's gross margin will stabilize at a level well above 40%, which can push up the relative valuation multiple. Bank of America predicts that the relative multiple will not decrease significantly, especially not below 1.2 times, which will be a more convincing reason to hold Apple's stock.

Before Bank of America analysts upgraded their rating, several institutions had downgraded Apple's rating in January.

Previously mentioned by Wall Street News, on January 2nd, Apple's stock price experienced its largest drop in nearly five months, falling over 4% during trading and closing down about 3.6%. The main cause of the sharp decline that day was a report from Barclays downgrading Apple's rating.

Barclays' report downgraded Apple's stock rating from hold to underweight, marking the first time the bank has lowered Apple to this rating since 2019. At the same time, these analysts slightly lowered Apple's target price from $161 to $160, about 17% lower than the closing price of the previous Friday, indicating that Barclays expects Apple's stock price to fall by about 17% based on the previous Friday's closing price within the next year.

In addition to Apple's continued weak performance, Barclays' report also predicts that the growth of Apple's service business will slow down, regulatory risks will increase, the return on the ecosystem will diminish, and warns that Apple's stock valuation is high and its performance continues to be weak when valuation multiples expand, making the stock price increase unsustainable.

Two days later, on January 4th, Piper Sandler's chief analyst Harsh Kumar downgraded Apple's rating from overweight to neutral in a report, citing the belief that the weak macro environment will suppress Apple's demand. However, Piper Sandler gave a target price of $205, about 11% higher than Wednesday's closing price, indicating that Apple's stock price still has 11% upside potential.

According to data compiled by the media, by 2024, Apple has become the large-cap tech stock with the fewest buy recommendations. After Piper Sandler downgraded the rating, the proportion of analysts bullish on Apple reached a three-year low. In the past four quarters, Apple was the only large-cap tech stock with declining revenue. Analysts' average expectations compiled by the media show that Wall Street currently expects Apple's revenue growth rate for the fiscal year 2024 to be only 3.6%, with a profit growth rate of 7.9%. Last Wednesday, analyst James Cordwell from Redburn Atlantic also downgraded Apple's rating, lowering it from Buy to Neutral. He stated that Apple is expected to resume growth in 2024, but the potential for growth in the coming years is limited. Additionally, the poor performance in the first quarter of this year is expected to impact investor confidence in its prospects.