Apple Stock Holds $328 Breakout as AI Server Plans Put $344 in Focus

TradingKey - Apple enters September 17 with the latest completed close at $332.41 on September 16, up 0.32%, just above the $332.48 documented in the reference charts. The stock has found support above the $328.65 breakout point for the past few hours. The longer term uptrend, represented by the 200-period moving average and rising trendline, comes in around the $315.96 support zone. Apple has already announced its fall product cycle, including iPhone Duo, higher-priced iPhone 18 Pro models and the rollout of Siri AI. The stock is trading near all-time highs and any bad news or negative surprise could send the stock lower.

Apple’s AI Story Is Becoming More Credible

Several enhancements to Siri have been announced, such as the integration of personal context, on-screen awareness and systemwide actions across apps. Additionally, Apple continues with its private, on-device, and cloud AI strategies.

Reports of Apple partnering with Nvidia to build AI servers have surfaced. Apple is reportedly exploring an AI-server project using future M8 Ultra chips and potentially Nvidia NVLink Fusion technology; no partnership has been formally announced. The project remains speculative at this point, however, it could come to market by 2029.

This proves Apple's intention to build out its cloud infrastructure and integrates well with its existing vertical integration strategy. If the reported project proceeds, it would extend Apple’s vertical-integration strategy further into AI infrastructure. With its investment in cloud infrastructure, Apple will be able to control more of the cloud-based infrastructure used with Siri and other Private Computing services and AI-related cloud offerings.

iPhone Duo Adds a New Premium Upgrade Catalyst

With the announcement of the iPhone Duo, Apple is now in the foldable phone market. The starting price of $1,999 for the iPhone Duo is significantly higher than other iPhones, and while it remains to be seen how many iPhones Apple will sell at this price, it does provide a way to increase average selling prices for the iPhones sold in the high-end market.

The other iPhones in the series are still priced below the Duo. The iPhone 18 Pro is $1,199 and the Pro Max is $1,299.

These prices reflect Apple's goal to raise revenue by passing along increased component costs to its customers. While charging more may work in the short term, it is still to be seen how customers will respond in the long-term to prices set by Apple.

Q3 Fundamentals Remain Strong

For fiscal Q3, Apple reported revenue of $109.42 billion, a 16.0% increase from the year ago quarter. Diluted EPS was $2.02, up 29% from last year. The iPhone segment reported revenue of $54.25 billion, up 22% from last year, while the Mac segment reported revenue of $10.35 billion, up 29% from last year. The Services segment reported revenue of $30.74 billion, up 12% from last year.

The rebound in hardware reflects better demand for the iPhones and displaces the theory of a declining market for smartphones. Better conditions in Greater China also provide potential upside for Apple.

A tariff credit also contributed to increase gross margin in the quarter. Apple’s 50.1% gross margin included an approximately 2-percentage-point benefit from tariff refunds, and diluted EPS included a $0.11 benefit. From an operations perspective, the main factors that could impact Apple are the cost of memory, and components that Apple incorporates into its products.

Supply and Memory Costs Are the Main Operating Risk

For the September quarter, Apple expects total revenue to grow 9%-11% year over year; the company did not provide specific revenue guidance in absolute dollar terms.

I think gross margin is a more relevant metric than headline revenue right now. There is a limit to how many iPhones Apple can sell if they want to continue having strong sales. There are chip and memory shortages that are limiting to everyone. Apple has said September-quarter supply constraints will affect iPhone, Mac and iPad, with advanced-chip and memory costs also pressuring margins. The great thing about Apple is that they can charge a premium, so the 48% gross margin is impressive and can help them overcome component inflation. If the inflation of components pushes the margin below the 48% target, then the valuation is warranted.

Valuation Is the Biggest Financial Risk

AAPL closed on September 16 at $332.41, at its recent 52 week high. AAPL closed September 16 at $332.41, below its recent 52-week high of $344.57. With a forward multiple of 36 and a free cash flow multiple of 35, investors are paying a premium for Apple. Apple’s 9%-11% revenue-growth guidance applies to the September quarter, not the next several years.

To justify the valuation, continued strength of the iPhone is a must. Apple is monetizing AI, and if they can keep gross margins in the mid 40% range, and continue buybacks, the valuation is warranted.

The recent interest rate hike by the Fed increases the discount rate for Apple, which has a negative effect on its valuation. The Federal Reserve raised rates by 25 basis points on September 16 to a 3.75%-4.00% target range, adding a valuation headwind for high-multiple technology stocks.

Apple Technical Analysis: $328.65 Is the Breakout Support

On September 16, Apple stock closed at $332.41, above the $328.65 resistance zone. The zone became support, and Apple stock tested it numerous times in the 4 hour time frame, and each time Apple stock retained its value above it.

Apple Stock Price Chart - Source: Tradingview

The Relative Strength Index (RSI) is at 61, and is above its signal line at 58. This indicates that momentum is rising and is not overbought.

In the presence of the support at $328.65, the next major expected value of Apple stock is in the zone at $344.38. A 4 hour close above the zone will likely lead Apple stock to test the next resistance/target at $354.92 and then $363.14.

If support at $328.65 is broken, it will indicate that the bullish move is completed and a pullback will be in the cards. Expectation for the first support to test will be in the zone at $318.29, and then $308.46.

Key Levels

·       Latest completed close: $332.41

·       Breakout Support: $328.65

·       Major Support Zone: 318.29-315.96

·       Deeper Support: $308.46

·       Main Upside Target: $344.38

·       Secondary Upside Target: $354.92

·       Third Upside Target: $363.14

·       RSI: 61

Why is Apple stock in focus now?

Improving iPhone production, ongoing developments with Siri, and the rumor of an M8 Ultra server project, have many investors looking at Apple again. Apple’s iPhone product cycle, the rollout of Siri AI and a reported M8 Ultra AI-server project are the main current catalysts. With these developments, some believe that Apple will release AI products similar to their current line of products using their in-house chips.

What level confirms further AAPL upside?

For now, as long as Apple is trading above $328.65, it's considered a bull market. However, if Apple trades over $344.38, then a target of $354.92 and possibly $363.14 becomes likely.

Bottom Line

While Apple currently appears bullish, the valuation leaves much to be desired. The new Duo, improvements in Siri, and the aforementioned chip project broaden Apple's products and services. However, the costs of external factors, like memory and supplier constraints, limit Apple's upside potential. Currently, I think Apple is bullish with a target of $344.38 and a support level of $328.65.