Apple's stock price will rebound on product innovation: Analyst

Apple's (AAPL) stock price has faced downward pressure in light of the Department of Justice's antitrust lawsuit against the tech giant. Neuberger Berman Managing Director Dan Flax joins Yahoo Finance Live to discuss why he believes this legal action will have little impact on Apple shares.

Despite the regulatory scrutiny and softening demand Apple is currently grappling with, Flax suggests that the iPhone market remains "pretty durable." He expresses confidence in Apple's ability "to continue executing well" with the introduction of new products potentially buoying the stock's price into 2025 despite the current pressures.

Flax acknowledges that tech companies earning heavy scrutiny over antitrust concerns is not new. Consequently, investors will have to patiently monitor how the fallout from the Department of Justice's lawsuit against Apple unfolds.

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Editor's note: This article was written by Angel Smith

Video transcript

- Well, speaking of Apple, what is next for the stock? It's still in focus this morning with the Justice Department's landmark antitrust lawsuit filed Thursday alleging a monopoly in the smartphone market and unfair practices tied to its App Store. Apple is also under investigation for potential violations of the European Union's Digital Markets Act and anti-competitive behavior in its App Store there. Now, Apple has denied these claims.

But let's bring in our next guest Dan Flax, Neuberger Berman Managing Director to break down where the tech giant goes from here. Good to have you on the show here. So in terms of next steps here for Apple and the stock, given this regulatory overhang, what are the best and worst case scenarios from here?

DANIEL FLAX: Good morning. Good to see you. I think from here, the DOJ lawsuit will remain a little bit of an overhang and of course, demand in the near term, China, general softness in the smartphone market will remain factors. But if we step back and think what's happening here, the iPhone franchise is pretty durable in my view.

The install base is continuing to grow. You're seeing a continued mix shift towards higher ASP devices-- the Pro and the Pro Max. So I think that is healthy. I think you'll see the company continue to execute well on its product cycles. We'll have iPhone 16, of course, later this year. Services is healthy. You'll see new iPads get launched. And so I expect better growth later this year and into 2025, which can help the stock outperform, in my view, from current levels over the next 12 to 24 months.

- Dan, regardless of the results of this investigation, antitrust lawsuit, this is something that's going to take a long time. And the question is, in the meantime, what does it mean for Apple's business as they try to expand, for example, on AI, that partnership with Google and the use of Gemini. You know, how do you think this reframes the way Apple thinks things knowing that they are now under the watch of antitrust regulators?

DANIEL FLAX: Well, the platform companies, including Apple, have been heavily scrutinized. And obviously, that is going to continue in the months and years ahead. I think if we look at the smartphone market specifically, the majority of the units sold are Android. If we think about the App Store, actually the majority of the apps they are free. And in fact, Apple has paid out over $320 billion to developers since opening the App Store in 2008.

And so we'll have to see how the proceedings and the lawsuit evolve in the coming months. We'll hear the arguments from Apple. From a fundamental standpoint, I think the company has to continue to innovate to execute on the product cycles. I do expect that to matter more to the share price over the next 12 to 24 months then the DOJ lawsuit.

I think the key for the company is we think about services or wearables. Vision Pro, that was launched recently. That will take time. They're continuing to innovate. And I think that will matter most when thinking about growth over this short and medium term. And ultimately, it's the growth that, in my view, will contribute to share price outperformance.

- Dan, even with that said, though, the question is whether that innovation needs to come from within or sort out through partnerships like a Google. And I mentioned AI specifically because there's been concern about whether, in fact, Apple is a little further behind at least in their internal development and whether because of that, they need to seek out partnerships. When you know that the DOJ is watching closely about Apple's dominance in the market, does that make it a little more difficult for Apple to keep pace on something like AI?

DANIEL FLAX: What I think is interesting is, if we look at the iPhone today, and the watch, they've been infusing machine learning and artificial intelligence across the product line for some years. And I expect them to continue to do that. As we look ahead and think about generative AI, I would expect Apple to incorporate some of its own intellectual property and also to use that of partners.

If we look at search as one example, Apple works with all the search providers. Google, which I think, is the strongest search provider, has the highest share in the market. And Apple works with them, it works with others as well. I think when we look ahead to generative AI, Apple is likely to work with partners, including Google. And there will be others as well.

The key, in my view, it's really this integration of the hardware, the software, and the services to deliver a differentiated user experience that people get delighted with. The key is if they're able to grow the install base by harnessing both their own technology, technology from partners, and the developers who build on top of everything, that is really the magic of Apple and their broader ecosystem in my view.

And their ability to nurture that is they have a strong track record. And I think we'll see more of that in the next two to three years.

- And Dan, you mentioned a couple of names there, of course, including Google when you think about some of the partnerships that Apple has. Where else do you see opportunities in the tech space beyond Apple? I know some of the ones you're looking at-- Alphabet, Amazon, Cisco, and others. What makes them the standouts for you?

DANIEL FLAX: What we look for is the core intellectual property and the ability to translate that into differentiated products and services that users, that customers value, and that drives growth. So if we look at Google, for example, we think they have tremendous intellectual property in terms of models, data, and really the infrastructure to drive growth from generative AI. So we see that as an opportunity.

We see YouTube accelerating and we think the Google Cloud opportunity with enterprise customers remains underappreciated. Amazon, which you mentioned, we continue to like, I think, the e-commerce business, while sure there are consumer headwinds, they're executing well with more one-day delivery.

Amazon Web Services should capitalize on the generative AI opportunity. And we think the advertising opportunity there is underappreciated. And I'll round it out with Motorola Solutions, the ticker is MSI, which is a leader in public safety. CEO Greg Brown and their management team have invested very thoughtfully in building out video and software capabilities.

So for example, many 911 centers in the country aren't able to take in text or video. And so they are helping to modernize the infrastructure for the men and women on the front lines, the first responders, helping to keep communities safe. And so we see significant growth there as well over the next couple of years. So we see and continue to see selective opportunities in the market today.

- Dan Flax, always good to get your insights there. Neuberger Berman Managing Director.