Apple(US:AAPL)2025-05-12 03:14Investment Rating - The investment rating for Apple, Inc. is "Buy" with a target price of $240, representing an expected total return of 22.8% from the current price of $196.25 [3][7]. Core Insights - The report highlights that Apple is experiencing a decline in search traffic on Safari for the first time, attributed to the rise of AI, and is actively seeking partnerships with AI providers to enhance Safari's search capabilities [1][2]. - Google pays Apple approximately $20 billion annually, which constitutes 36% of the revenue generated from Apple platforms, to remain the default search engine. The potential loss of this revenue could significantly impact Apple's earnings per share (EPS) [1][2]. - The report presents three scenarios for Apple's TAC revenue: a bull case with no changes, a base case with a reduction to one-third of current revenue, and a bear case with no TAC revenue at all, estimating EPS impacts of $1 to $1.5 in the base and bear cases respectively [1][5]. Revenue Projections - In the bull case scenario, total revenue for FY24 is projected at $391 billion, with Google TAC contributing $25 billion. EPS is estimated at $6.08 [5]. - In the base case scenario, total revenue is projected to decrease to $387 billion, with Google TAC revenue dropping to $10 billion, resulting in an EPS of $6.16 [5]. - In the bear case scenario, total revenue is expected to fall to $378 billion, with no contribution from Google TAC, leading to an EPS of $5.66 [5]. Valuation - The target price of $240 is based on a price-to-earnings (P/E) ratio of 28x on the FY2027 EPS estimate, which is an 8% premium to Apple's historical P/E levels, justified by expanding gross margins and a growing services sales mix [7].