Three major investment banks unanimously focus on: Why should we buy Apple now?

According to the Zhitong Finance APP, why should one buy Apple (AAPL.US) now? In this regard, Bank of America Securities and two other major investment banks have elaborated on their respective logic in research reports. Bank of America Securities believes that Apple's current expected price-to-earnings ratio is close to 25-27 times, which is at a relatively low level within the valuation range since 2020; compared to most companies, Apple's risk characteristics are superior and should warrant a higher valuation. The market has not fully reflected the growth potential of its services business. Goldman Sachs believes that the market's focus on the slowdown in product revenue growth obscures the strength of Apple's ecosystem and the durability and visibility of related revenues; over the next five years, most gross profit growth should come from the services business, marking a turning point in the narrative of service investment and supporting Apple's high price-to-earnings ratio. Additionally, Morgan Stanley stated that growth in the U.S. App Store is still accelerating, but surveys show that long-term external link risks remain.

I. Bank of America Securities: In-depth Analysis of the Bull-Bear Battle for Apple

Rating: Buy | Target Price: $235.00 | Current Stock Price: $200.85

Although Apple cannot be called "cheap," it remains an investment target with multiple revenue and profit margin growth avenues, and the company will continue to have strong free cash flow and shareholder returns. Apple's stock price has fallen 20% year-to-date, while the S&P 500 index has risen 1%, and Bank of America believes this divergence will eventually narrow.

For a company with $35 billion in net cash and short-term investments and an annual free cash flow of $100 billion, most funds still hold insufficient positions. Bank of America believes that Apple's ecosystem and brand are core competitive advantages, and through substantial R&D investment, the company has the capability to explore new potential markets. Even in the face of regulatory, competitive, and trade challenges, this will still help maintain growth. Based on its robust earnings, strong capital returns, and the potential for monetization through new growth channels, the "Buy" rating is maintained.

Bearish Views

Surge in Regulatory Resistance: Apple's progress in artificial intelligence is lagging, with missed deadlines and delayed features raising concerns about its execution capabilities. The lawsuit from the U.S. Department of Justice and declining search traffic pose risks to Google's search payments. High-margin App Store revenues are also facing regulatory pressure.

Doubts About Growth Momentum: Where will the next round of growth come from? What is Apple's "next major product"? Tariffs and supply chain shifts bring additional risks, and competition in the Chinese market remains fierce, with some investors believing that its services business growth is slowing.

Bullish Views

Diverse Growth Paths: We believe the risk of negative surprises or earnings forecast downgrades for Apple is low. In the long term, vertical integration and a high-end product mix will enhance profit margins. Apple may be entering the "terminal artificial intelligence" field late, but it can still dominate.

Sustained Ecosystem Expansion: The growing installed base of Apple devices supports the growth of its services business. Advertising, artificial intelligence services, finance, health, robotics, autonomous driving projects, and media are all key areas where Apple has growth potential. Share buybacks and dividends remain strong, and as Apple shifts to a net debt position, this trend may continue in the long term Why Should You Buy Apple Now?

Apple's current expected price-to-earnings ratio is close to 25-27 times, which is at a relatively low level within the valuation range since 2020. Compared to most companies, Apple has a better risk profile and should command a higher valuation. It can be argued that the market has not fully reflected the growth potential of its services business, and in an AI-driven world, the potential market size for services will significantly expand.

2. Goldman Sachs: Apple App Store Spending in April/May Increased by 12%/13% Year-on-Year

According to SensorTower data, Apple App Store spending in April and May 2025 increased by 12% and 13% year-on-year, respectively. This means a cumulative year-on-year growth of 12% from the beginning of 2025, slightly higher than the consensus forecast from Goldman Sachs (GS) and FactSet for service revenue growth in the third quarter of fiscal year 2025 (F3Q25) (year-on-year +11%/+10%). We expect the App Store to continue to be the largest category of Apple's service revenue (Goldman Sachs predicts it will account for 27% of total service revenue in the third quarter of fiscal year 2025).

According to SensorTower data, Apple's global net revenue from the App Store in May 2025 was $6.803 billion, an increase of 13% compared to $6.023 billion in the same period last year. As 2025 progresses, the May data marks an improvement in the growth trend, with April's global net revenue at $6.489 billion, a year-on-year increase of 12%. The spending growth in Apple's App Store continues to outpace that of the Android Google Play Store, which saw a year-on-year increase of 8% in both April and May 2025.

Acceleration of Growth Trend: In May 2025, Apple's App Store net revenue grew by 13% year-on-year, accelerating from 12% in April. This marks the third consecutive month of year-on-year growth acceleration since February 2025 (+10%) and March 2025 (+11%). Compared to last year, April 2024 saw a growth of 12% (on par with this April), while May 2024 grew by 15% (slightly lower than this May). Year-to-date in 2025, App Store net revenue has increased by 12% year-on-year, exceeding Goldman Sachs and FactSet's forecasts (+11%/+10%).

Category Drivers: The growth in April and May 2025 was primarily driven by spending in the entertainment and photo & video categories, while growth in the gaming category continued to lag.

Entertainment (accounting for 16% of net revenue in April-May) saw a combined revenue increase of 24% year-on-year.

Photo and video (accounting for 8% of net revenue in April-May) grew approximately 42% year-on-year.

Gaming (accounting for 46% of net revenue in April-May) saw only about a 2% year-on-year increase, significantly lagging behind other categories.

Key Regional Performance: In the United States, App Store spending in May 2025 increased by 10% year-on-year, with an 8% increase in April, significantly accelerating from about 4% in February and March. In China, spending grew by 5% in May, slowing from an 8% year-on-year growth rate in April.

Apple Inc. Rating:

Goldman Sachs maintains a "Buy" rating on Apple, with a 12-month target price of $253, reflecting a 30 times valuation of its expected earnings per share (NTM+1YEPS) over the next 12 months Main Investment Logic:

Goldman Sachs maintains a "Buy" rating on Apple, as the firm believes that the market's concern over slowing product revenue growth overshadows the strength of Apple's ecosystem and the durability and visibility of related revenues. The growth of Apple's installed base, structural growth in its services business, and new product innovations should be sufficient to offset cyclical headwinds in product revenue, such as declines in iPhone sales due to extended replacement cycles and reduced consumer demand in the personal computer and tablet categories. Relative to Apple's historical price-to-earnings ratio (both absolute and relative) and major tech peers, its valuation is attractive. Over the next five years, most gross profit growth should come from the services business, marking a turning point in the services investment narrative and supporting Apple's high price-to-earnings ratio. The durability of Apple's installed base and the visibility of revenue growth generated by adding more services and products form the basis for recurring revenue (i.e., the "Apple as a Service" opportunity).

Main Risks:

Weak Consumer Demand: Apple's products and services primarily target consumers, and any weakness in the macroeconomic environment could reduce demand for Apple's products and services. In fiscal year 2024, 51% of Apple's revenue comes from iPhones, which heavily relies on upgrade-driven purchases. Extended replacement cycles due to macroeconomic headwinds, increased product durability, or lack of product innovation could negatively impact upgrade demand.

Supply Chain Disruptions: Although Apple's suppliers are located worldwide, most final assembly occurs in China. Escalating geopolitical tensions could lead to disruptions in global trade, including through tariffs. Despite Apple's strong supply chain network, it may rely on one or a few key suppliers for unique or hard-to-manufacture components at scale.

Increased Competition: Apple faces competition in personal devices (such as smartphones, tablets, personal computers, and headphones) and various services (such as video streaming, app distribution, advertising, music streaming, online fitness, cloud storage, and product warranties). Although Apple is the largest and most resource-rich company among its competitors, it does not lead the market in every business line. For example, in the video streaming space, it faces several major competitors that invest more in content than Apple.

Regulatory Risks: Apple is subject to strict regulatory scrutiny in all major markets where it operates. Regulatory intervention could undermine Apple's competitive advantage if it is forced to make its proprietary products or services available to competitors.

Capital Allocation Execution Risks: Apple has a history of mergers and acquisitions (M&A), but success is not guaranteed. Apple also has a history of stock buybacks, which may prove to provide lower investment returns or be subject to deeper regulatory scrutiny.

III. Morgan Stanley: Growth in the U.S. App Store is Still Accelerating, but Surveys Indicate Long-Term External Link Risks Remain

(1) Growth of Apple's U.S. App Store Accelerates

Despite the ban on April 30, U.S. App Store revenue grew by 10% year-over-year in May, up from 8% in April, with revenue per download increasing by 5%, a 3 percentage point increase from April. If the quarter ended today, there could be an upside of $110 million in service revenue for the June quarter No significant negative impact.

SensorTower data shows that in May, net revenue from U.S. app stores grew by 9.6% year-on-year, accelerating by 70 basis points compared to April, while net revenue per download increased by 4.6% year-on-year, accelerating by 340 basis points from April, indicating that the ban has no significant impact on growth and monetization. Additionally, global app store net revenue grew by 13.1% in May, with net revenue per download increasing by 10%, both showing significant acceleration compared to April.

(II) Long-term risks: External link risk and user willingness in app stores

An AlphaWise survey conducted on May 25 revealed that 28% of U.S. iPhone users are very likely to avoid in-app purchases (IAP), a figure consistent with the 2022 survey. Among them, young males and users who have paid for more than five apps are at the highest risk.

Potential impact: If actual behavior aligns with the survey, it could lead to a 10% risk to app store revenue, 3% risk to service revenue, and 2% risk to Apple's earnings per share (EPS). Assuming 28% of U.S. app store revenue is paid through external links (with Apple charging a 0% rate), in the worst-case scenario, FY26 EPS could decline by about 2% (16 cents).

Price discount: Users unwilling to pay through external links require a 30% price discount, down from 35% in 2022. If developers offer a 20% discount, it may incentivize about 3% of U.S. iPhone users to pay through developer websites, reaching the highest level in survey history.

(III) Future events to watch

WWDC (June 9): No major announcements related to the app store are expected.

June app store revenue tracking: Real-time data will reflect the actual impact of the ban.

Ninth Circuit Court of Appeals ruling: This will determine whether Apple’s appeal against the ban continues, affecting the legality of external link payments and Apple's revenue risk.

(IV) Financial forecasts and valuation of revenue and profit growth

Total revenue is expected to grow by 3.4% in FY2025 and by 7.3% in FY2026. iPhone revenue is projected to grow by 7.1% in FY2026, while service revenue is expected to grow by 11.5%. Gross margin is stable at around 46%, with an expected increase to 47.5% in FY2027.

Earnings per share (EPS): EPS for FY2024 is projected at $6.75, $7.02 for FY2025, $7.69 for FY2026, and $8.64 for FY2027.

Target price and rating: Maintain "Buy" rating with a target price of $235, based on a 7.9x EV/Sales or 29.2x P/E valuation for FY2026.

(V) Risk warnings

Upside risks: iPhone 17 performance exceeds expectations, unexpected increase in AI feature adoption, early transformation of device forms, accelerated service growth, gross margin exceeds expectations.

Downside risks: Weak consumer spending leads to low iPhone upgrade rates, limited progress in AI features, geopolitical tensions and tariff impacts, increased regulation (especially regarding app stores and Google TAC) (6) Survey Method

An online survey was conducted in May 2025 with approximately 2,000 consumers aged 18 and above in the United States. The sample is representative in terms of age, gender, and region, with a total sample error margin of ±5% at a 90% confidence level