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Apple (NASDAQ:AAPL) shares ticked up fractionally in premarket trading on Wednesday as investment firm Needham raised its price target, noting that the company is spending its capital on share buybacks instead of generative artificial intelligence infrastructure.
Needham analyst Laura Martin raised her price target to $260 from $220 and reiterated her Buy rating. Despite the price target boost, Martin expressed concern that Apple’s revenue growth rate could be at risk in the next three years and suggested that Apple build an advertising business similar to the one Amazon (AMZN) has built.
Apple is estimated to generate $9.3B in ad revenue in 2024, according to data from eMarketer.
“Advertising is global and, at $966B total and $500B on mobile in 2024, both are larger than AAPL’s FY24E revs of [less than] $400B,” Martin wrote in an investor note, adding that margins on advertising are typically between 70% and 80%.
If Apple were to sell connected TV ads on Apple TV+, that could add 140 basis points to revenue growth and essentially double the company’s revenue growth estimate, Martin said. If Apple were to increase the number of ads on the App Store, that would accelerate revenue growth even faster, Martin added.
In May, Apple announced a historic $110B share buyback in conjunction with its fiscal second-quarter results. At the time, the $110B figure was larger than the market cap of 418 of the companies in the S&P 500.