Apple is actually an undervalued stock, this analyst says

Taking the position that shares of Apple (Apple Stock Quote, Chart, News, Analysts, Financials NASDAQ:AAPL) are undervalued seems like someone drew the short stick at debate club. After all, the stock is currently trading at about ten times sales and a P/E ratio of 42.

But that is exactly the position that Wedbush analyst Dan Ives took on December 27 in a research update to clients, and he makes a compelling case.

“We believe Apple is heading into a multi-year AI driven iPhone upgrade cycle that is still being underestimated by the Street,” the analyst wrote. “Rome wasn’t built in a day and neither will Apple’s AI strategy but the seeds of that strategy with Apple Intelligence are now forming and will transform the Apple consumer growth narrative over the coming years. We estimate that with hundreds of apps in development around Apple Intelligence that in essence creates a new multi-billion annual Services revenue stream will be another growth catalyst along with catalyzing iPhone upgrades across the board over the next 12 to 18 months. We believe Apple is on pace to reach the $4 trillion market cap threshold and be the first member of this exclusive club.”

As reported by the Globe and Mail, Ives maintained his “outperform” rating and raising his price target on AAPL from $300.00 to $325, a street high.

Ives says naysayers have missed the boat on Apple in the past and they will miss it again.

“We believe many bears and long time Apple naysayers that have missed the last $1 trillion+ upward move in market cap for Apple have miscalculated three very important dynamics of the Apple story: 1) unmatched installed base of over 2 billion iOS devices and 1.5 billion iPhones with ~300 million iPhones in the window of an upgrade opportunity, 2) Services business worth $2 trillion of valuation which is increasing its monetization of the customer base, 3) consumer AI will go through Apple’s ecosystem with over 20 per cent of the world’s population ultimately interacting with AI on an Apple device the next few years. We believe the success of iPhone 16 with a strong holiday season in tow will be the launching pad for a renaissance of growth in Cupertino over the next 12 to 18 months that kicks off in this December quarter,” he added.