| | | Apple’s New AI iPhone Is a Hit on Wall Street. If Shoppers Don’t Agree, Watch Out.
(paywalled article)
Jack Hough
July 26, 2024 1:30 am EDT
Squirrel DJs are dropping this fall.
The next crop of iPhones will include something called Apple Intelligence, which is AAPL’s long-awaited push to weave more artificial-intelligence tools into its devices. The company has put out a short film highlighting its new tricks, like one where users create emojis and images by simply typing or speaking. “Squirrel DJ,” for example, will get you a bushy-tailed turntablist.
I don’t want to trivialize the life-transforming potential here: The film had a surfing T. rex and a cat chef, too.
OK, I’m underselling it. There are features to help punch up emails and stitch together home movies in a snap, and Siri, Apple’s voice assistant, is growing more capable. A beta version of the new features will launch this fall for anyone with last year’s iPhone 15, along with recent iPads and Mac computers. Those with older phones can stay put in the Stone Age or spring for a new iPhone 16, also coming this fall —which has Wall Street debating whether we’re headed for an iPhone supercycle.
Apple used to have those. Long ago, when smartphones were young, it would occasionally add a feature that buyers found genuinely compelling, whether a gee-whiz one, like Siri, or something simple but handy, like bigger screens or speedy 5G service. The result would be a bumper year for sales and profits—and a higher share price.
So, is Apple Intelligence a big-enough deal? Definitely, says Wedbush analyst Dan Ives. Apple is headed for an “AI Driven Massive Upgrade Cycle,” he wrote earlier this month, and “Cupertino will be the gatekeepers of the consumer AI Revolution.” That sounds profitable. Erik Woodring at Morgan Stanley is on board. He calls Apple Intelligence a “clear path to a multiyear product upgrade cycle.” In mid-July, he named Apple a top pick and raised his price target all the way from $216 to $273, two bucks below Ives.
The market says “maybe.” Apple has easily outperformed the rest of Big Tech over the past two months, rising 16%. That period included Apple’s big conference for software developers in early June, where it laid out its AI plans. But Apple and the rest of the group have sold off in recent days, reflecting concerns that prices have climbed too high, too fast on AI excitement. Considering that Apple, which peaked at $237 a share and recently fetched $220, is once again at the top of the heap based on market value, investors have a lot riding on its next phones.
Leading the pooh-pooh parade is UBS analyst David Vogt. He forecasts iPhone revenue growth of 2.4% during Apple’s fiscal 2025, which begins after September—around the time new phones are often released. That’s respectable growth for such a ubiquitous product, but it’s four percentage points below consensus expectations and 10 points below the most bullish forecasts. Vogt rates the stock at Neutral, but his price target of $190 implies the potential for a further selloff.
Bulls point to Apple’s massive base of iPhone users who might want to upgrade, but Vogt reckons the likeliest candidates are iPhone 12 or earlier owners making more than $50,000 a year, which is just 17% of users. The new AI phones are likely to come with higher prices, which have been shown to cut into demand, especially in Europe. U.S. phone companies aren’t likely to kick in big subsidies, given the recent stability of the telecom market. China hasn’t approved Apple’s new AI features. India has far fewer smartphone high-rollers than China.
Even more concerning are UBS’ survey results. Back in 2020, it asked respondents how they felt about the launch of 5G phones. Awareness was high, and U.S. “net interest,” an indication of buying potential, came in at 58%. This time around, for AI, awareness is also high, but U.S. net interest is just 18%. The measure has fallen significantly in other geographic regions, too.
If the survey results are any clue, phone buyers are less excited than many Wall Street analysts about Apple’s new features. In Vogt’s view, this has something to do with an early shortage of grabby applications. “Convincing consumers to upgrade to a new iPhone to leverage better writing tools, Genmoji, an image library, and integration with ChatGPT will be a tall order in our view without a robust third-party ecosystem of applications,” he writes. If he’s correct, Apple could hit a stock slumper season before it reaches its next sales supercycle.
Link (paywall): barrons.com |
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