Has Apple "fallen from grace"? Bank of America: Still the top choice for tech stock investment in 2024

Apple, which has been plagued by recent negative news, is set to announce its second-quarter financial report next Thursday. A recent report by Bank of America predicts that Apple's second-quarter revenue and earnings per share are expected to exceed market expectations. However, due to ongoing weak demand, it is anticipated that the performance guidance for the third quarter may be lowered. Despite this, Bank of America points out that the acceleration in AI and continued growth in the services business make Apple the top choice for tech stock investment in 2024.

Q2 Performance Expected to Exceed Expectations, Q3 Guidance May Weaken Slightly

Bank of America forecasts that Apple's second-quarter revenue will be $91.5 billion, higher than the market's expected $90.3 billion, and earnings per share will be $1.53, surpassing the market's expected $1.50. The report indicates that Bank of America expects sales revenue from Vision Pro to reach up to $1 billion, which is not included in the market model.

For the third quarter, Bank of America states that due to weak demand conditions, the bank has lowered its iPhone sales estimate from 43 million units to 40 million units, compared to the market's expectation of 43.6 million units. Bank of America predicts that Apple's third-quarter revenue will be $81.7 billion, below the market's expected $83.8 billion, with earnings per share of $1.32, lower than the market's expected $1.33.

Positive Outlook for the Future Continues

Despite acknowledging the weak demand environment, Bank of America believes that Apple's stock price has already reflected this, with the stock falling 14% since the beginning of the year. Bank of America's overall forecast for Apple for the year remains relatively unchanged, reiterating a buy rating and expressing optimism that new generative AI products will increase gross margins and that the services business still has growth momentum.

Bank of America states that there are several key news items to watch for Apple in the remaining time this year, which may stimulate a rise in stock price. These include the potential increase in capital return rate in the second quarter, the announcement of generative AI-related content at the Worldwide Developers Conference (WWDC) in June, the launch of the new iPhone 16 in the fall, and the potential further acceleration of gross profit growth each quarter. Bank of America's survey indicates that all four new iPhones this year may adopt the same A18 processor, which will enhance AI/machine learning performance.

Furthermore, Bank of America believes that Apple's service growth remains strong, with room for margin expansion. The report predicts that Apple's services business will continue to maintain double-digit year-over-year growth, with an estimated 11% in the second quarter, 13% in the third quarter, and 15% in the fourth quarter. With the expansion of business scale and long-term opportunities, including internal production of server chips and reducing reliance on public cloud service providers, Bank of America is optimistic about the improvement in Apple's services business profit margins, and expects revenue from licensing, App Store, iCloud, and subscription services to continue strong growth.

Raised Full-Year Performance Expectations, Maintaining Unchanged Target Price

Bank of America continues to maintain the target price at $225 and has raised Apple's revenue and earnings per share expectations for the 2024 fiscal year, increasing the annual revenue forecast from $393 billion to $396 billion and raising the full-year earnings per share from $6.68 to $6.70 The research report also predicts that Apple will authorize a new $900 billion share buyback plan, similar to previous years.

At the same time, Bank of America predicts that Apple will increase its dividend by 5% starting from the third quarter, moving towards its goal of "Net Cash Neutral." Bank of America expects Apple's cash flow to remain strong, forecasting free cash flows of $100 billion and $108 billion for the fiscal years 2024 and 2025, respectively. Based on Bank of America's valuation of Apple's 2024 earnings at 32 times, the target price remains unchanged at $225.

Apple's stock price fell 0.33% to $168.46 during Thursday's trading session.