Help build Berkshire Hathaway becoming a nearly trillion dollar company and founding the Giving Pledge charity are just a few things Warren Buffett is known for.
Despite his prolific career, one thing Buffett doesn’t know much about is technology investing. In fact, many of the most famous and profitable investments come from simple businesses in financial services and consumer goods.
However, Buffett has been a strong supporter Apple (NASDAQ: AAPL) almost ten years. Currently, Apple represents Berkshire’s largest position — about 30% of its portfolio.
Although Apple shares have made significant gains since Berkshire’s initial purchase in 2016, some on Wall Street are calling for more stock price appreciation. In particular, Dan Ives of Wedbush Securities has a $300 price target on Apple stock – indicating a 32% rise at the market close on September 24.
Let’s explore some of the catalysts that could fuel Apple’s stock and determine if there is a good opportunity to buy the stock now.
Macro indicators are positive
For the last couple of years, high inflation and rising interest rates have daunted the macroeconomy in the US In addition, as a global company, Apple has also not been immune to some factors slowing down other major geographical areas such as China.
In turn, consumers and businesses have tightened their budgets and their spending habits have changed. People have become more cost-conscious over the past few years, opting for an expensive new iPhone or MacBook.
However, as the inflation rate shows signs of decelerating and the interest rate tapering from the Federal Reserve begins, the purchasing power of consumers should begin to strengthen.
Did someone say artificial intelligence?
In the past few years, several megacap tech companies have made big splashes in the artificial intelligence (AI) arena. Apple has not been one of those companies.
However, during a recent segment on CNBC, Dan Ives announced that Apple is entering a “renaissance.” I agree.
For starters, Apple’s new iPhone 16 hit shelves last week. As I mentioned above, many users in the Apple ecosystem have not upgraded their devices in the past few years. But with signs of economic improvement on the horizon, I think Apple will recognize some of the pent-up demand for new hardware.
Furthermore, I think Apple’s new collaboration with OpenAI will bring two additional catalysts for the company.
First, integrating OpenAI capabilities into its products has helped create Apple Intelligence. When the company starts rolling out new AI-powered services, I think consumers will be inspired to upgrade and buy Apple’s new products.
Additionally, Ives predicts that the relationship with OpenAI will be the first in a series of AI-inspired partnerships for Apple. In particular, Ives called for a deal between Apple and Baidu. Baidu can be considered as the equivalent of Google in China. The deal could help revive demand for Apple products overseas, particularly in China.
Whether a special deal with Baidu will be done is not important to me. On a higher level, I agree with Ives’ thinking that OpenAI will be one of a series of partnerships that Apple is working on as it finally begins to penetrate the AI market.
All of these factors could create a tailwind for Apple, which Ives calls a “supercycle.” In my eyes, Apple’s entry into the realm of AI could be a significant growth arc for the company.
Should you buy Apple stock now?
One downside to Apple stock is that it’s expensive right now. Currently, Apple’s trailing price-to-earnings (P/E) ratio is 33.7 with a significant premium to S&P 500‘s forward P/E of 22.9.
Furthermore, the forward P/E trend for the S&P 500 has been normalizing for some time. In contrast, Apple has experienced a notable expansion in value.
I bring all this up because investors should know that Apple stock has become more valuable, despite its late entry into the tech industry’s newest frontier: AI. There’s a fair argument to be made that some AI-driven growth has been baked into Apple’s stock price.
Despite this narrative, I think the company’s growth from the new iPhone and from Apple Intelligence is more difficult to call one way or the other now. For that reason, I would not underestimate Apple’s ability to command reignited growth thanks to resilient and restored consumers.
In the long term, I still see Apple as an attractive opportunity and think the stock is worth a look now.
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Adam Spatacco has a position at Apple. The Motley Fool has positions and recommends Apple, Baidu, and Berkshire Hathaway. The Motley Fool has a disclosure policy.
Meet Warren Buffett’s Top Artificial Intelligence (AI) Stocks That Have 32% Upside By Dan Ives originally published by The Motley Fool
