Apple Inc. is poised to capitalize on the latest boom in artificial intelligence (AI), with its stock performance expected to shine amid growing partnerships and technological advancements. The company, which officially introduced its Apple Intelligence suite for iPhones, iPads, and Macs at the end of 2024, aims to leverage its vast user base and existing hardware to drive sales and improve profitability within the competitive AI space.
Investors have closely monitored the broader semiconductor market as it experiences explosive growth driven by the demand for AI capabilities. Recent figures indicated significant surges among major semiconductor companies, with Nvidia (NASDAQ: NVDA) seeing its stock skyrocket around 170% since early 2024, and Broadcom (NASDAQ: AVGO) enjoying gains of approximately 110%. These figures highlight how tech firms scramble for the computing power necessary to train and deploy AI models. According to analyst commentary, "With a vast user base, strong semiconductor design capabilities, and the ability to deliver secure, personalized AI with minimal reliance on costly cloud computing, Apple stands to gain significantly."
Despite being somewhat late to the AI game compared to rivals, Apple's Apple Intelligence suite has gained attention for its impressive implementation. The revamped suite includes updated Siri capabilities, enhanced writing assistance, improved calculators, and even image generation features, pushing the envelope against competitors who are still searching for stable use cases for generative AI technologies. Users of older iPhone models are more likely to seek upgrades to iPhone 16 and 16 Pro models, which exclusively support the new AI tools. Although iPhone sales remained flat with revenues declining year-over-year by 1% to $69.2 billion during the holiday quarter, analysts suggest there is potential for recovery as features roll out gradually.
Interestingly, Apple's targeted rollout strategy presents potential for increased sales, as only about 20% of iPhone users currently can access the AI features. Analysts predict as more capabilities expand across devices, especially for established models, Apple could catalyze much-needed growth within its stagnant iPhone and iPad sales over recent years.
Apple's services division continues to be another cornerstone of growth, generating nearly $100 billion over the past year, with revenue from services increasing by 14% year-over-year to approximately $26 billion during the first quarter of fiscal year 2025. This surge has made services the company's fastest-growing segment, and as they integrate AI capabilities, there's potential to introduce new premium services and subscription offerings. With over 2.3 billion active devices and increasing storage needs for AI processing, even small monetization through AI subscriptions could generate substantial revenue.
While many tech companies have invested heavily, spending billions on AI-related capital expenditures, Apple’s strategy of on-device AI processing results in customers shouldering the costs of enhanced computing power rather than the company itself.
The emergence of China's DeepSeek AI model poses yet another consideration for Apple and its stock market performance. DeepSeek has gained traction by optimizing AI software for cost-efficiency, significantly reducing the financial burden associated with AI development. "DeepSeek emphasizes software-driven optimization over reliance on powerful hardware, significantly reducing the cost of AI model training," noted industry experts. For example, reports suggest DeepSeek was able to train its V3 model for just $5.5 million, considerably lower than the hundreds of millions spent by preceding AI corporations like OpenAI. This trend could weaken the demand for high-end GPUs from companies like Nvidia as businesses adopt lightweight, localized AI models, which stands to benefit Apple, whose processors are adept at handling such tasks efficiently.
Reflecting on Apple's stock performance over the past four years reveals volatility when compared to the S&P 500 index. From returns of 35% in 2021 to -26% in 2022, it then rebounded with 49% gains in 2023 followed by 31% this year. Notably, the Trefis High-Quality Portfolio, which comprises 30 stocks known for lower risk, appears to outperform the volatile swings typical of individual stocks, making it appealing to investors seeking stability within the current uncertain macroeconomic climate.
Currently, AAPL stock trades at a high valuation of 31x forward earnings, and revenue growth is predicted to stay modest at mid-single digits over the next couple of years. Despite being viewed as key beneficiary within the AI narrative, the market remains cautious. A $228 price estimate has been suggested, closely aligned to its present trading value. Conversely, analysts retain bearish sentiments toward Nvidia stocks, with the prediction of values plummeting to about $93—approximately 30% shy of its current standing.
While Apple’s strategic positioning could lead to beneficial outcomes as AI sees broader integration and utilization, it remains to be seen whether the tech giant can maintain momentum against the backdrop of strong competitors and fluctuated market expectations. AI's growth potential signals exciting possibilities for Apple moving forward.