Analysts see double-digit growth in Apple App Store revenue so far this quarter. Are stocks ready for a rebound?

apologize (AAPL -1.92%) As you can see from our latest quarterly results, we’ve had some issues recently. As iPhone sales fell 10%, the company’s total revenue fell 4%.

But one bright spot for the company has been revenue from services, including the App Store and Apple TV. Services revenue grew 14% last quarter, and that momentum appears to be continuing, with one Wall Street analyst recently saying the company’s App Store revenue is seeing double-digit growth so far this quarter.

Let’s take a closer look at what analysts are saying and see what the continued strength of the App Store could mean for Apple’s stock price rise.

App Store momentum continues

bank of america Analyst Wamsi Mohan recently published a note using data from market intelligence firm Sensor Tower showing that App Store sales rose 11% to $5.4 billion in the first 66 days of the company’s fiscal third quarter. This was driven by growth in productivity apps, with the segment growing 36% year-on-year. Gaming revenue, the largest app segment, rose 6%.

Importantly, Mohan said European Union data shows revenue in the region has increased by 25% over the past 90 days, while downloads have increased by 3%. This is important information because the European Union has forced Apple to open its systems to third-party app stores and browsers as part of its Digital Markets Act. Mohan noted that despite this new law, there has been little change in consumer behavior toward Apple’s App Store so far.

This in itself is good news. But if this behavior is any indication from consumers around the world, especially in the US, it would also eliminate the potential risk facing Apple. The possibility of the U.S. forcing Apple to make similar changes was risky, but even if other app stores and browsers were allowed on Apple’s platforms, the risk would be greatly reduced if consumers didn’t change their habits.

May was also a stronger month than April, with App Store sales up 12% in May, including 10% growth in China, according to Sensor Tower data. China saw a 20% increase in entertainment app sales.

Regarding China, in a separate report Citibank Analyst Atif Malik said recent third-party data shows iPhone demand in China is stabilizing, which could be linked to the company overhauling its own Asian supply chain. Malik said sales discounts in China ahead of the country’s June 18 shopping holiday helped boost sales. This follows news that iPhone sales in China surged 52% in April.

Both the App Store and China data points are important to Apple. App Store and services revenue have been a bright spot for the company, with these segments generating much higher gross margins than product sales. In the first quarter, service gross profit margin was 74.6% and product gross profit margin was 36.6%. This means that service revenues are much more profitable than product sales, and profitability is falling to the ground. This helped Apple report that profits rose during the first half of its fiscal year despite a slight decline in sales.

Meanwhile, China has been a difficult market for Apple recently, so stabilization is a good sign.

Image source: Getty Images.

Is it time to buy stocks?

Apple has been going through some troubles recently, but there seem to be clear signs that the worst is now behind the company. Meanwhile, companies could be gearing up for a hardware upgrade cycle in the coming years as consumers look to upgrade their smartphones and computers to run the latest artificial intelligence (AI) technologies. Apple may not be at the forefront of AI, but it tends to not rush into new technologies, preferring to implement the right ones first. With an integrated ecosystem, we expect it to run smoothly as companies introduce more AI-intensive features.

Apple stock, which trades at a forward price-to-earnings (P/E) multiple of 30, isn’t a bargain given its recent growth.

AAPL PE Ratio (Forward) Data from YCharts

With App Store risks waning, China stabilizing, and a potential boost from AI ahead, it seems like a good time to jump into Apple stock, which has underperformed many other large tech stocks over the past year. I expect growth to begin to recover in the next fiscal year and for the stock to be a clear winner over the long term.