Apple (NASDAQ:AAPL) has yet to seriously lean into the AI opportunity but it feels like it is only a matter of time until it makes some serious AI-flavored moves. During the tech giant’s recent earnings call, CEO Tim Cook showed excitement about AI and indicated that Apple would be unveiling AI-related developments later this year.
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Since AI has already been integrated into smartphones for several years, powering features such as facial recognition, translation, and image editing, Bernstein analyst Toni Sacconaghi suggests that actually defining what constitutes an AI phone is “somewhat messy.” However, he believes the term should probably be applied to smartphones that are specifically marketed by OEMs as “AI phones.” Some big names are already doing just that, the most notable AI offerings being Google’s Pixel 8/Pixel 8 Pro, and Samsung’s Galaxy S24 series.
Rather than being all-out revolutionary, these models’ AI capabilities “appear incremental.” Furthermore, both offerings have seen minimal hardware changes compared to their previous models, primarily focusing on upgrades to processors and batteries, which are standard features in new smartphone models.
So, what could Apple do? Sacconaghi thinks the company could focus on enhancing AI capabilities that align closely with its existing products while introducing incremental improvements. This could include advancements in image and video capture/editing tools, bolstered translation and transcription features, improved messaging support, enhanced Siri functionality, and increased automation in services like Apple Music. Additionally, Apple may look to provide a more seamless user experience, aiming to enhance overall ease of use across its ecosystem.
Within this context, Sacconaghi thinks that there are two important questions to consider: “1) Even if Apple’s AI functionality is not unique, will the novelty of AI + Apple’s powerful marketing be enough to trigger a material upgrade cycle, especially since Apple appears ‘due’ for a strong cycle following a weak iPhone 14 and 15? We note that Apple was late relative to peers to introduce large screens (6/6+ cycle), OLED (iPhone X) and 5G, but each triggered meaningful upgrade cycles for Apple; (2) how much of the new AI capability will be exclusive to iPhone 16 vs. be a software upgrade to Apple’s installed base? We believe more the former, which points to bigger announcements in Sept with iPhone’s launch than in June (WWDC).”
For now, Sacconaghi remains on the sidelines with a Market-Perform (i.e., Neutral) rating on Apple shares, and a $195 price target, suggesting the shares will post growth of 6% over the coming months. (To watch Sacconaghi’s track record, click here)
7 other analysts join Sacconaghi on the fence, and with 1 additional Sell and 16 Buys, the stock claims a Moderate Buy consensus rating. At $206.15, the average target makes room for one-year returns of ~12%. (See Apple stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
