3 Reasons Apple Stock Could Gain More Than 20%

Apple CEO Tim Cook unveiled the company’s iPhone 17 range on Tuesday. (Getty Images)

Apple stock was slipping early Wednesday after its latest iPhone launch event. A lack of news on artificial-intelligence upgrades looks set to hold the stock back but one Wall Street analyst sees grounds for believing in strong gains from here.

Apple shares were down 1.9% at $229.90 in early trading following the unveiling of its iPhone 17 range on Tuesday. The stock has gained 16% in the past three months but remains down 6% for the year so far through to Tuesday’s close.

However, Melius Research analyst Ben Reitzes kept a Buy rating on Apple stock and raised his target price to $290 from $260 in a research note. That’s based on a price-to-earnings multiple of 30 times his forecast for the company’s earnings in fiscal year 2027.

Higher iPhone prices, continued payments from Google, and optimism over future AI upgrades are the basis for his optimism.

The showpiece of Tuesday’s event was the iPhone Air, an ultrathin smartphone set to cost $999. It will replace the midrange Plus model from previous years and could help lead to a boost in the average selling price of the iPhone 17 range.

“The main thing is the $999 price point is likely to cannibalize much of the lower-priced models that start at $799 in the iPhone 17 line-up, improving mix,” wrote Reitzes in a research note. “Also, we think the new stylish form factor may help Apple’s share in China and other regions—garnering a little more ‘sizzle’ than a skeptical US market.”

Secondly, Reitzes argues the potential of Apple’s partnerships hasn’t been fully recognized after Google was cleared to continue making payments to be the default search provider on Apple’s devices in a judge’s ruling on its antitrust case.

Alphabet , Google’s parent, pays Apple an undisclosed percentage of Google’s ad revenue for searches on Apple devices. The arrangement led to a $20 billion payment from Google to Apple in 2022, according to court filings, and analysts estimate it receives broadly the same amount annually.

“We remain very pleased with the recent Google Antitrust ruling and believe that Apple will see higher revenue than previously modeled from monetizing its Search and potential AI partnerships,” Reitzes wrote.

Finally, the Melius analyst is confident Apple will eventually deliver the promised AI upgrades to its Siri digital assistant despite previous delays. Apple has reached an agreemen t to test a Google-developed AI model to help power a search tool, according to a recent Bloomberg report.

“We know that Siri-gate was frustrating but don’t think Apple is losing share and patience is being rewarded,” Reitzes wrote.

Write to Adam Clark at adam.clark@barrons.com