Key insights
- UBS notes decelerating App Store revenue growth in May, particularly in the US, potentially limiting upside for Apple's Services segment. While overall Services growth forecasts remain unchanged, the firm cautions that App Store revenue upside is unlikely, especially with tough comparables for generative AI-related revenue. Despite these concerns, UBS maintains its price target on AAPL, citing balanced demand and AI strategy uncertainty.
Investing.com -- UBS said decelerating App Store revenue growth could limit upside to Apple's Services segment, after data showed May growth slowing to the low single digits for the first time this year.
Analyst David Vogt told clients in a note on Thursday that the bank’s analysis suggests App Store revenue grew approximately 3% on a reported basis in May, around 150 basis points slower than April, weighed down by a roughly 7% decline in the U.S. On a foreign exchange neutral basis, growth was said to have been approximately 2%.
"May is the first month in the low-single digits, weighed down by the decline of ~7% in the US," Vogt wrote.
On a quarter-to-date basis, the App Store is tracking at approximately 4% growth, with June facing a roughly 12% comparable period, which UBS described as "still not an easy hurdle."
UBS also flagged a deceleration in generative AI-related App Store revenue, which slowed to approximately 94% year-over-year growth in May from approximately 190% in January.
Despite the softer App Store trends, UBS left its full Services segment growth forecast unchanged at approximately 14%, noting that consolidated Services growth remained solid at roughly 16% last quarter even with App Store growth of just 7%.
However, the firm cautioned that revenue upside from the App Store looks unlikely, particularly as the generative AI growth comparable remains similar month over month into June.
UBS maintained its $296 price target on Apple, based on 30x its CY27 EPS estimate of $9.86, reflecting what the firm described as solid demand balanced against uncertainty around Apple's AI strategy.
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