Shares of Apple (NASDAQ:AAPL | AAPL Price Prediction) were stopped in their tracks when KeyBanc’s Brandon Nispel issued a downgrade to underweight from equal weight, citing valuation concerns. Indeed, it’s been quite a run for shares of Apple in recent months.
They’ve quietly become a Mag Seven top performer of sorts. But before you take profits over Nispel’s sell-equivalent rating (his price target suggests the stock could enter a bear market from current levels), I’d consider the possibility of a 2027 supercycle that might just help earnings grow enough to justify the seemingly high price-to-earnings (P/E) multiple of 38.4 times.
Cramer is almost always right in ignoring the Apple bears
In any case, Jim Cramer isn’t at all worried about the latest Apple downgrade. Time and time again, the man has encouraged investors to stay the course with the name, and he’s been right to stay bullish, even as some bold sell-side analysts turned against the stock for one reason or another. In many ways, Cramer is right in that those who follow such calls just wind up missing big moves and having to repurchase at higher prices.
Of course, the “too high” valuation argument is the strongest it’s been in a while. But, at the same time, the stock is pricier for a reason: it’s about to enter the AI race and, this time, it might have what it takes to win, especially with its latest Apple Foundation Models, which aren’t just Google Gemini with a coat of Apple paint.
As Apple does its best to shrink down highly capable models to run on a device, I do think that the company might ultimately win the AI race as tokens go from fairly expensive to pretty much free when run on device.
Apple’s biggest AI breakthrough is right around the corner
Arguably, shrinking models down to run at no cost might be the biggest breakthrough to hit the AI world since Claude Mythos or even the debut of ChatGPT-3.5. As the pace of AI’s progress begins to slow, Apple might be the quiet winner as the firm looks to bring the consumer world into its AI ecosystem.
As agentics and hyper-personalized, private AI come into their own, I think it’ll be tough to stop Apple in its tracks, especially now that it’s got the killer feature to convince the masses to upgrade as soon as possible and in spite of higher prices on components like DRAM and storage.
Once Apple looks to take control of the cloud, with its Baltra cloud chip in the works, I do think that the company might be one of the few companies that actually creates immense value while driving token costs to new depths. In any case, it seems like Apple will build the AI cloud compute it needs, rather than blowing tons of CapEx right off the bat and hoping there’s someone to sell excess compute to.
Perhaps inverting the AI buildout is the way to go for optimal ROIs. While Apple is seldom first, it is best. And when it comes to AI, I do think that the firm will eventually have something that, if not the best, comes close to it, but at a fraction of the cost.
In any case, it’s clear Apple doesn’t need to be at the frontier to win in AI, as the market prioritizes prudent spending and the value AI provides behind the curtain.
The bottom line
As the pieces of Apple’s AI puzzle finally come together while the firm readies for its biggest-ever year of hardware releases, I find it makes no sense to sell the stock just because its P/E is high. Cramer is right to shoot down the latest downgrade right in its tracks.
Aside from the Siri AI tailwind and a potential device supercycle, the margin gains to be had from Baltra in the cloud, as well as the likelihood that DRAM-induced price hikes won’t reverse when component prices drop, lead me to believe that Apple remains an incredibly timely bet.
If you sold the stock just because it looked expensive, you might have missed out on generational rallies.
Given the catalysts ahead, I think Apple stock isn’t just worth a hefty multiple, it might be worth a heftier one. Any way you look at it, Jim Cramer is right on the money as he ignores the advice of a lonely new bear in the analyst community.
Contact [email protected] for any questions or corrections.
Top Gaining Stocks
Top Losing Stocks