Apple's "rare" surge by 4.3%, market value increased by $112 billion in a single day

On Thursday, April 11th, Apple's stock price saw a rare surge, closing up 4.3%, with a market value increase of $112 billion in a single day.

At a time when Apple has faced a series of setbacks since the beginning of the year and its stock price has been in a slump, some Wall Street analysts such as Bank of America and JP Morgan have gone against the trend and expressed optimism about the company. On the same day, reports indicated that Apple is planning a major upgrade, introducing the new generation chip M4 for Mac computers, with artificial intelligence (AI) capabilities as the highlight of M4. These related news significantly boosted Apple's stock price on that day.

Bank of America: Investors are underestimating Apple's gross margin again

Bank of America analyst Wamsi Mohan stated in the latest report released on Thursday that investors are once again underestimating Apple's gross margin. "We believe that Wall Street is once again underestimating Apple's long-term gross margin potential in both products and services. We expect Apple's product gross margin to increase by about 180 basis points in the coming years, and the service gross margin to increase by about 150 basis points."

Mohan pointed out that the current market underestimation of Apple has occurred before. In 2018, Wall Street predicted Apple's gross margin for 2023 to be 39%, but in reality, Apple exceeded this expectation, reporting a gross margin of 44% last year.

This year, due to the slowdown in iPhone sales, which is Apple's profit engine, and difficulties in integrating artificial intelligence into products and services, the company's stock price had accumulated a 13% decline from the beginning of the year. However, with the significant rise on Thursday, by the closing, the year-to-date decline in its stock price narrowed to about 9%.

Looking ahead, Mohan expects vertical integration and product portfolio to bring Apple's gross margin up by over 100 basis points. He also anticipates that Apple's use of its in-house modems can increase product gross margin by 110 basis points, and iPhone's gross margin is expected to increase by 160 basis points.

Meanwhile, Apple can lower costs and gain 100 basis points in service gross margin by creating its own data center chips and using its chips in data centers.

Mohan believes that the high-profit business of services at Apple, which is continuously increasing its share in the company's total revenue, can improve gross margin by 60 basis points. In addition, pricing is another way Apple can further increase its gross margin.

JP Morgan: Hedge funds eager to try

Another major Wall Street firm, JP Morgan analyst Samik Chatterjee, also affirmed Apple and similarly believed that investors are underestimating Apple, while noting that market sentiment shows some signs of improvement.

Chatterjee stated that since the launch of 5G phones, Apple's valuation premium has been at a low level. In addition, the rise of artificial intelligence and its role in the next generation iPhone upgrade cycle have sparked investor interestChatterjee explained that despite the deteriorating fundamentals of hardware demand and service growth prospects, interest in Apple's stock has improved among investors who are usually cautious about premium valuation multiples, even though Apple's growth prospects are among the lowest compared to other large tech stocks.

Chatterjee revealed that hedge fund investors' enthusiasm for the artificial intelligence upgrade cycle is continuously increasing. Hedge funds are focusing on adverse factors in hopes of finding a more favorable entry point before the artificial intelligence upgrade cycle arrives. He also mentioned that there are still some doubts about whether the related upgrade cycle will be launched later this year with the iPhone or by 2025.

Apple brewing Mac full-line upgrade with the strongest 3nm chip

Recent news shows that just five months after the global debut of the 3-nanometer (nm) chip M3 in personal computers, Apple is preparing for a major upgrade by equipping Mac computers with the new generation chip M4, with artificial intelligence (AI) capabilities being the highlight of M4.

Media reports on Thursday cited sources familiar with the matter, stating that Apple is preparing to completely transform the entire Mac product line with a new self-developed processor aimed at highlighting AI, and is currently close to producing the M4 chip with AI capabilities. Apple's goal is to release multiple Mac computers equipped with M4 from the end of this year to early next year, including the new iMac, low-end 14-inch MacBook Pro, high-end 14-inch and 16-inch MacBook Pro, and Mac mini.

Financial indicators reflect Apple's cost-effectiveness

According to compiled data from the media, Apple's current expected P/E ratio is around 24 times, lower than similar companies like Microsoft, and even cheaper than the NASDAQ 100 index dominated by tech stocks. With Apple's contrarian decline among large tech stocks since the beginning of the year, cost-effectiveness has become apparent to some.

Some investors are dissatisfied with Apple's undervaluation, saying that McDonald's market-to-sales ratio is even higher than Apple and Google, which is very unreasonable. This can be seen as a microcosm of the hedge fund investors mentioned by the Morgan Stanley analyst above.