Nearly ‘Glowtime’ for AI-focused iPhone, here’s what Wall Street expects

Apple (AAPL) is expected to reveal its iPhone 16 at the company’s “It’s Glowtime” event on September 9. Aside from the iPhone 16 launch, Morgan Stanley believes it will also feature new Apple Watches and possibly new AirPods, and Apple Intelligence integration with the new devices, which the firm sees as the key to unlocking pent up iPhone demand and accelerating replacement cycle. Piper Sandler is also looking for more on Apple Intelligence during next week’s event, with the firm viewing it as an incremental positive for the “super cycle” thesis.  

KEY TO UNLOCKING PENT UP DEMAND: Apple’s “It’s Glowtime” event, which starts at 1pm ET/10am PT on Monday, September 9, is widely expected to feature the iPhone 16 launch, new Apple Watches, and possibly new AirPods, Morgan Stanley says in a research note ahead of the event. The firm expects the event to heavily feature Apple Intelligence integration with the iPhone 16, including the benefits of more DRAM and a more powerful SoC. Other key details to watch for includes iPhone pricing, and iPhone battery life. Morgan Stanley expects iPhone 16 pricing to be unchanged year-over-year, though it expects Apple to eliminate the 128GB iPhone 16 Pro SKU, helping to drive 5% year-over-year ASP growth in FY25. Overall, the firm says Apple Intelligence remains the key to unlocking pent up iPhone demand and accelerating replacement cycle. Morgan Stanley has an Overweight rating on the shares with a price target of $273.

BULLISH INTO THE EVENT: Goldman Sachs notes that in the past 5 years, Apple’s stock underperformed the S&P 500 by an average of 70 bps on the day of the iPhone announcement, and the firm expects this year’s event to be similarly immaterial to the stock price. That said, upside surprises could include the announcement of a price increase on iPhones; earlier-than-expected AI features and apps; new iPad announcements; and better-than-expected carrier promotions. Goldman reiterates a Buy rating on Apple and believes that new product innovation for the iPhone 16 coupled with new AI features should drive upgrades and installed base growth. The firm forecasts iPhone revenue to be -1% year-over-year in 2024 but expects iPhone revenue growth to accelerate to 9% in both 2025 and 2026, catalyzed by AI features and new iPhone hardware form factors.

STRONG CYCLES: In a research note ahead of Apple’s “It’s Glowtime” event, Bernstein notes that reports suggest the potential for $100 increase on Pro models, but it is also possible that Apple could look to keep prices the same and offer higher prices on select configurations. That said, there could be mix downs from Pro models given Apple Intelligence being available on all iPhone 16 models and demand elasticity, particularly given the macro backdrop, the firm adds. Initial AI functionality will only be available in October with iOS 18.1, and be limited. Bernstein believes Apple will likely demo further AI, but expects features to roll out over the next 6-plus months. It does expect Apple to provide a more defined timeline for the release of various AI functionalities and languages/geographies.

The firm thinks the iPhone 16 and 17 will be strong cycles given AI functionality introduction and lengthening replacement cycles over the last several years. Bernstein models 13% year-over-year iPhone revenue growth, but believes that an “OK” iPhone 16 and stronger 17 is increasingly embedded in expectations. Further, the firm anticipates full availability/no product delays. Bernstein sees risk-reward coming more into balance. The firm has an Outperform rating on the shares with a price target of $240.

MORE ON APPLE INTELLIGENCE: Heading into next week’s iPhone launch event, Piper Sandler remains Neutral on Apple, as it continues to believe a lot of the near-term excitement is built into the stock. The firm’s focus of the event will be Apple Intelligence and any additional insight the company can provide on the various use cases across iOS. From recent news reports, it doesn’t appear that there will be any revolutionary hardware innovations as a part of the iPhone 16, so if Apple Intelligence can be the “star of the show,” Piper would view it as an incremental positive for the “super cycle” thesis. In addition to Apple Intelligence, the firm will be keeping an eye on iPhone 16 pricing, particularly as the consumer starts to show signs of cracking.

PRICE ACTION: In Wednesday morning trading, shares of Apple have dropped about 2% to $218.74.