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Third Point believes that demand for AI could significantly boost Apple’s revenue and profits in the coming years.
apple (Apple Inc.) Apple unveiled a preview of its “Apple Intelligence” AI feature in July. The feature could help improve Siri, automate email and photo creation, and sort notifications. However, the rollout only includes a partial set of features, not the full suite.
According to Bloomberg, the AI system will start appearing in October after the release of iOS 18. Apple also says it will roll out more AI features, including image and emoji generation, automatic photo cleaning, and integrated ChatGPT over the next year.
In a letter to investors dated August 23, Third Point CEO Daniel Loeb said: “Despite the recent strong appreciation in the stock, we see room for significant upside ahead as the size of this new AI opportunity surprises.”
Apple CEO Tim Cook said the company would “continue to make significant investments” in Apple Intelligence technology during an earnings call in August. “We are very excited about Apple Intelligence, and we remain incredibly optimistic about the extraordinary potential of AI.”
Apple expects strong revenue growth for September third quarter
Apple Inc. reported strong earnings for its fiscal third quarter on August 1. The company earned $1.40 per share, beating the consensus estimate of $1.35. Apple’s revenue of $85.78 billion, up 4.9% from a year ago, beat estimates of $84.53 billion. The third quarter was also a record.
iPhone sales remain Apple’s biggest business. iPhone revenue was $39.30 billion, down 1 percent from a year ago but beating analysts’ estimates of $38.81 billion. iPhone sales account for about 46 percent of the company’s sales. A new iPhone model is due out this fall.
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The iPad segment showed the strongest growth, with sales up about 24% year over year to $7.16 billion. About half of iPad buyers were first-time buyers, suggesting the tablet market has not yet reached saturation, according to Apple CFO Luca Maestri.
Apple’s sales in Greater China, including Taiwan and Hong Kong, fell 6% to $14.72 billion, as local rivals put pressure on sales.
Maestri said on the earnings call that Apple expects fiscal fourth-quarter revenue to grow year-over-year at a similar rate to the previous quarter. Revenue growth in the fiscal third quarter was about 5%.
Apple stock is ‘under-owned’ by institutions, Third Point says
Third Point began buying Apple stock in April, and the tech giant was one of the top five winners in its portfolio for the second quarter. Apple shares rose about 23% during the period.
“Despite Apple’s dominance as a company, its stock is increasingly owned by institutional investors and its relative multiples have fallen toward multi-year lows,” Loeb said, citing “several years of stagnant earnings growth” and concerns that Apple could become “an AI loser.”
“Our research has led us to a different conclusion: We believe that AI-related demand could significantly improve Apple’s revenue and earnings over the next few years,” he added.
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The hedge fund’s flagship Offshore fund saw a return of 1.8% in the quarter ended June 30, lagging the S&P 500’s gain of 4.3% over the same period.
The company said growth was “largely driven by technology companies,” but diversification into other sectors such as industrials, consumer and healthcare partly offset the gains. The biggest losers were Bath & Body Works (BBWI) advanced auto parts (dad) Ferguson PLC, Airbus SE, and payments company Corpay, formerly known as Fleetcor.
Analysts revised their price targets for Apple shares after earnings and forecasts.
Citibank raised its target on Apple stock to $255 from $210 and maintained a buy rating after seeing Apple’s financial results. The analyst was encouraged by the early positive reaction to the new Apple Intelligence features in iOS 18 and management’s belief that artificial intelligence will drive major upgrades to the iPhone.
Goldman Sachs also raised its price target on Apple from $265 to $275 and maintained a buy rating. The analyst believes Apple is approaching a multi-year iPhone replacement cycle.
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“The company reported strong iPhone-driven earnings in the fiscal third quarter as services momentum continued,” the analyst told investors in a research note.
Barclays analyst Tim Long cut his target price on Apple shares to $186 from $187 with an underweight rating.
“Q3 results were better than expected, led by the iPad, and Q4 revenue forecasts were slightly better than expected, though slightly below Barclays estimates,” Long wrote. However, he expressed concerns about sales in China, regulatory risks, and uncertainty over iPhone 16 sales and AI features.
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