On Friday, Citi adjusted its outlook on Apple Inc. (NASDAQ:AAPL) shares, reducing the price target to $220 from the previous $225 while sustaining a Buy rating on the stock. The adjustment comes as the firm revises its projections based on recent supply chain data and consumer behavior analytics.
The revision in Apple's price target reflects a modest decrease in projected iPhone unit sales in China for the March quarter by 0.4 million, amounting to a 21% year-over-year decline, compared to the previously estimated 17%.
This change is attributed to persistent weak consumer confidence and increased preference for domestic brand Huawei in the region. Despite this, Citi forecasts that total iPhone unit sales will remain steady in the calendar year 2024, reaching 231 million.
Citi observes that Apple's services sector continues to exhibit strong momentum quarter-to-date. The firm anticipates that Apple's stock may face some pressure leading up to the Worldwide Developers Conference (WWDC) in June. However, Citi identifies the event as a potential turning point for the company, with the introduction of AI capabilities expected to boost smartphone demand into 2025.
The firm estimates that each 1% annual increase in AI smartphone adoption could result in approximately 20 million additional smartphone shipments, translating to roughly $20 billion in sales.
Consequently, Citi has adjusted its fiscal year 2025 earnings per share (EPS) prediction downward by 9 cents but continues to endorse a Buy rating. The rationale for maintaining a positive stance on Apple includes anticipated structural gross margin expansion driven by the premiumization of AI-powered smartphones and the growth of Apple's services.
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