Apple weakness a buying opportunity, developer conference a key catalyst – Morgan Stanley

Apple (AAPL) shares have been on the back foot since mid-December, continuing the decline into 2024. Still, analysts at JPMorgan and Morgan Stanley provided an optimistic tone in notes on Monday.

JPMorgan analysts maintained an Overweight rating and $225 price target on the stock, telling investors to put the recent underperformance into context.

“AAPL shares have had tough start to the year, down -6% in the first week, given building pessimism around a lack of momentum in iPhone sales in conjunction (and somewhat in contrast) to the valuation multiple trading at the high-end of the range that the shares have historically traded at,” analysts said. “However, to put the recent underperformance in context, it followed a period of time since Sep of 2023 (just prior to the launch of the iPhone 15) over which AAPL shares modestly outperformed the broader market (up 8% vs. S&P 500) despite limited drivers.”

They noted that the consensus EPS hardly changed late in the year, and the rise in the share price was attributed entirely to multiple expansion.

“The recent trade-down, and a return of the share price back to almost September 2023 levels, has in effect been driven by fading optimism around a rebound in consumer spending, as well as increasing concerns around the regulatory backdrop,” they added. “Despite the pull-back, AAPL shares are trading at closer to high-end of trading multiple, but at the same time not an egregious level.”

Meanwhile, Morgan Stanley was even more positive, stating that they are getting more bullish on Apple’s “Edge AI” opportunity.

“While near-term Product demand remains uneven (vs. Services outperforming), we believe this is captured in recent underperformance,” analysts at Morgan Stanley, who reiterated an Overweight rating and $220 price target on the stock.

Morgan Stanley believes that after 9 points of underperformance vs the S&P 500 in the last month, Apple shares (NASDAQ:) are oversold, and they’d be buyers of weakness.

“More importantly, we believe Apple is accelerating its Gen-AI efforts, meaning an LLM-enabled OS & iPhone is likely closer than expected,” analysts at Morgan Stanley added.

Apple’s Developer Conference in early June 2024 is viewed as a key catalyst by Morgan Stanley, given the potential for the introduction of new Gen-AI software features.