Is AAPL Stock a Buy? Jim Cramer Says ‘Maybe Not’ Unless Apple Does This 1 Surprising Thing.
Celebrated host of the popular CNBC show “Mad Money” Jim Cramer reckons iPhone-maker Apple (AAPL) should act on rumors and acquire AI startup Perplexity. Long touted by many as being behind in the AI race, Cramer believes that “the market wants growth, so you have to buy growth,” and that Apple should buy growth in a big way by snapping up Perplexity.
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The argument makes sense as Apple’s “Magnificent Seven” peers like Microsoft (MSFT), Meta (META), Google (GOOGL), and Amazon (AMZN) all have either their own generative AI platforms or have investments those from startups. Moreover, Meta’s recent mammoth $14 billion investment to acquire a 49% stake in data company Scale AI only reinforces the fact that the AI race is only going to get hotter and Apple risks falling behind if it does not act fast.
Apple has always been known for its differentiation. Whether through its operating systems, hardware, privacy-first policy, or sleek designs, Apple has consistently outclassed its competition, which has resulted in its flagship iPhone and other devices reaching a global installation base of over 2 billion.
Perplexity offers a similar edge as it is unlike other generative AI platforms. Known for its real-time, citation-backed answers, Perplexity is apt for research. Moreover, it offers access to several powerful language models, including GPT-4 Turbo, Claude 3, and Mistral, allowing users to cross-check results and benefit from the strengths of different models within one platform. This multi-model approach provides flexibility and robustness in generating accurate and diverse outputs, unlike single-model platforms. Also, its Pro Model is priced competitively at $20 per month, comparable to its peers.
Meanwhile, Perplexity is purportedly in the middle of a funding round, aiming to raise $500 million at a valuation of $14 billion. Despite the fact that this is a lower valuation than what the company expected in March, it is still an almost 56% jump from the December 2024 valuation of $9 billion. However, with a $28.2 billion cash pile, it would not be an issue for Apple to come up with the money if it does decide to make a sizable acquisition.
As highlighted extensively in my recent analysis, Apple has its problems with its position in the AI battle being of paramount concern to investors. Yet, its Services division has been a notable bright spot for the company in recent years. Moreover, Apple’s unmatched brand will always be an edge for the company.
Further, the outlook for Apple appears more resilient than often portrayed, with the company pursuing a diversified growth agenda that includes sustained emphasis on product and service development, broadening of its interconnected ecosystem, and fortifying its global supply chain. As part of this ongoing strategy, Apple has been consistently rolling out refreshed product lines, including the iPhone 16e, updated Mac models, and a new iPad, each powered by custom-designed Apple silicon chips. These processors are engineered to enhance speed and energy efficiency while unlocking new hardware-enabled functionalities across its device range.
Notably, the company has achieved record highs across every major product category and geographic region within its installed base, a testament to the strength of its user retention and overall brand satisfaction. As Apple continues to open new physical and digital retail outlets in emerging markets such as India, the UAE, and Saudi Arabia, it is successfully drawing in new users while also increasing the stickiness of its service offerings. This geographic expansion serves to reinforce the company’s customer acquisition loop and deepen monetization through services tied to its hardware ecosystem.
Apple’s financials are as strong as ever.
Even after witnessing a correction of about 20% so far this year, Apple commands a gargantuan market cap of $3 trillion, making it one of the most valuable companies in the world.
Apple’s second-quarter performance for its fiscal 2025 once again outpaced market expectations, underscoring its continued ability to deliver steady growth even in a mature phase of its business cycle.
Total revenue reached $95.4 billion, marking a year-over-year increase of 5.1%. Profitability also improved, with the company reporting a gross margin of 47.1%, modestly higher than the 46.6% margin recorded during the same quarter last year. Product-related revenue grew by 2.7% to $68.7 billion, while the Services division maintained its upward momentum, registering an 11.6% gain to $26.6 billion.
Earnings per share came in at $1.65, comfortably exceeding the prior year’s $1.53 and beating the consensus estimate of $1.62.
Apple closed the quarter with a healthy liquidity buffer, ending the period with $28.2 billion in cash — an amount significantly above its near-term liabilities of around $6 billion.
The company also reaffirmed its ongoing focus on shareholder value through the introduction of a new $100 billion share repurchase program, accompanied by a 4% dividend increase, lifting the payout to $0.26 per share.
Considering all this, analysts have issued a consensus “Moderate Buy” rating for Apple stock with a mean target price of $230.75. This indicates upside potential of about 15.2% from current levels. Out of 37 analysts covering the stock, 18 have a “Strong Buy” rating, three have a “Moderate Buy” rating, 13 have a “Hold” rating, one has a “Moderate Sell” rating, and two have a “Strong Sell” rating.
On the date of publication, Pathikrit Bose did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. This article was originally published on Barchart.com