Apple shares nudged higher Friday, and look set to overtake Nvidia as the world's second most-valuable stock, after a top Wall Street analyst detailed the likely impact of its newly launched drive into AI technologies.
Apple (AAPL) , which has printed a series of record highs over the past month and now trades with a $3.22 trillion market value, unveiled its AI ambitions during in Cupertino, California earlier this month. The gala event included a major reboot of its Siri digital assistant and a series of new features for its hardware base that it dubs "Apple Intelligence".
Apple's strategy aims to integrate a host of AI-powered tasks such as summarization, text generation, photo editing and enhanced search, into its ecosystem of iPhone, iMacs and iPads.
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Analysts see this effort as the best and fastest way to drive adoption of the newly developed technology at the consumer level.
"Because Apple has not only the consumer's information, but also their trust, it can deliver the above deeply integrated functionality in a way that stand-alone chat applications, PCs, and Android (GOOGL) devices may not be able to fully replicate," said D.A. Davidson analyst Gil Luria in a recent client note.
That's leaving analysts and investors to speculate as to how, and when, Apple will be able to monetize its AI ambitions and justify the added capital spending it will require over the coming months.
Apple's artificial-intelligence profit path
Bernstein SocGen Group analyst Toni Sacconaghi, who boosted his Apple price target $45 to $240 a share in a note published Friday, sees Apple's upcoming iPhone 16 launch as the key to establishing its AI leadership in the consumer space.
“We believe the principal reason for incremental investor enthusiasm for Apple is that investors now believe Apple can be a leader in AI, not a laggard,” said Sacconaghi, who carries a 'buy' rating on the stock.
Sacconaghi sees four pathways for Apple to monetize its AI strategy, starting with offering on-device AI technologies that will "drive accelerated iPhone replacement and incremental hardware sale."
The analyst in fact sees every 1% increase in upgrade rates as driving 1.8% in incremental revenue growth, given the tight connectivity between Apple's installed base of 2.2 billion devices — including iPads and iMacs — and its broader services offerings.
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He also sees Apple generating revenue from AI-driven search, as well as from commissions or fees from application developers eager to leverage their own technologies on the Apple platform, and says App Store spending is likely to increase as well.
Sacconaghi did note, however, that Apple's lag in articulating its AI ambitions, as well as its decision to limit new features to newer iPhone models, could mean that monetization takes a bit longer than anticipated.
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“While we are increasingly convinced that Apple will be an AI beneficiary, we see risk that the benefits could take longer to materialize than some bulls appear to believe,” he wrote.
“Many features for Apple Intelligence will roll out over the next year and will only work in English, potentially pushing out some upgrades to the iPhone 17 cycle," he added.
Consumer AI catalyst
Wedbush analyst Dan Ives argues, however, that around 270 million units of the 1.5 billion installed iPhone base haven't upgraded in around four years, and argues that Apple's new AI strategy will catalyze "a long awaited supercycle."
But he echoes Sacconaghi's take on App Store sales and says developers will build hundreds of new options onto the existing Apple stack, which he sees as the main avenue through which consumers interact with generative AI.
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"While Apple has been late to the game on AI with the biggest consumer installed base in the world, Cook & Co. have a unique advantage to monetize the AI party in this 1995 moment," said Ives, who carries an 'outperform' rating and $275 price target on Apple stock.
Apple shares were last marked 0.5% higher in early Friday trading and changing hands at $210.78 each, a move that would extend their year-to-date gain to around 14%.
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