Apple’s AI Push: Analyst Sees Strong iPhone Demand, But AI Rollout May Be Slower Than Expected
Shares of Apple Inc. (AAPL), the world’s largest company, have enjoyed a strong year-to-date performance, surging over 16%. As the company gears up for its third-quarter earnings report on August 1, one analyst has highlighted key areas to watch closely.
Key Takeaways:
- Bank of America analyst Wamsi Mohan maintains a Buy rating on Apple, with a price target of $256.
- Mohan expects Apple to report third-quarter revenue of $84.5 billion and EPS of $1.35, slightly exceeding Wall Street expectations.
- Investors will focus on management’s commentary on AI, Chinese market share, and services revenue.
- Apple’s AI initiative, "Apple Intelligence," is expected to be a key revenue driver, but features will be rolled out gradually, with the first iPhone 16 models likely not including all features.
- Mohan sees strong iPhone demand, with the new AI features driving an upgrade cycle.
- He expects an average sales price increase and a longer-lasting iPhone cycle due to ongoing AI development.
- The analyst expects a rebound in sales for iPads, Macs, and wearables in 2025 after a weaker spending cycle.
Apple’s AI Ambitions: A Gradual Rollout
Apple’s announcement of "Apple Intelligence" in June sparked excitement among analysts about its potential to drive growth. This AI-powered addition to Apple’s software is seen as a key differentiator in the increasingly competitive smartphone market. However, a recent report suggests that Apple will not be fully integrating AI features into its first iPhone 16 models, which are expected to be released this fall. Instead, the company will adopt a phased approach, rolling out AI capabilities as the technology matures and becomes more stable.
This strategic decision, while potentially disappointing for some, highlights Apple’s approach to innovation: a deliberate and iterative process aimed at delivering a polished and reliable user experience.
AI Drives iPhone Demand, But Market Share Remains A Focus
While the gradual AI rollout might not immediately impact iPhone sales, Mohan believes that "Apple Intelligence" will ultimately drive an upgrade cycle. He points to pent-up demand and a significant number of older iPhones in the market. The new AI features, he argues, will offer compelling reasons for consumers to upgrade to newer models.
However, Apple faces challenges in its largest market – China. The company’s market share there has been shrinking, primarily due to increased competition from local brands. Investors will be eager to hear how Apple plans to address this challenge and regain lost ground.
Beyond the iPhone: A Look at Other Product Segments
While the iPhone remains a crucial revenue driver for Apple, Mohan also anticipates an upswing in sales for iPads, Macs, and wearables in 2025. These segments experienced a dip in spending during the recent economic downturn, but with consumer sentiment improving, Apple is poised to capitalize on renewed demand.
The integration of AI across these product categories is expected to further enhance their appeal and drive user engagement. Apple’s ability to seamlessly integrate AI into its diverse product portfolio will be a key factor in its continued success.
Apple’s Future: A Balance of Innovation and Execution
Apple’s commitment to AI, its focus on a gradual rollout of features, and its efforts to boost sales across its product portfolio suggest a company that is strategically adapting to the evolving technology landscape. While navigating challenges in the Chinese market and managing consumer expectations around AI integration, Apple remains a dominant force in the tech industry.
Investors will be closely watching the upcoming earnings call to gauge management’s confidence in the company’s trajectory. Apple’s ability to deliver on its AI vision, while balancing innovation with a laser focus on user experience, will be crucial to its long-term success.
