Apple (AAPL) struggles in 2024. The company's shares are down 7% year-to-date, iPhone sales are slowing in China, its third-largest market, and the European Commission fined it $2 billion for antitrust violations, among other regulatory issues. Apple plans to appeal. In addition, the Department of Justice is apparently contemplating an antitrust complaint against Apple.
Those headlines may bruise any corporation. Apple is more than a company. It's the second-most valuable publicly traded company after Microsoft and has 2.2 billion active devices worldwide. At least two Wall Street analysts said the company's promise in generative AI and ability to harness its enormous user base to boost subscription sales will benefit it in the coming months.
All things generative AI captivate Wall Street. The market's love of AI seems to benefit Nvidia and Microsoft the most, but Apple might also benefit.
“We think [Apple's] AI strategy will focus on incorporating on-device inference for [large language models] that will substantially uplift the user experience for not only the iPhone but also Mac/iPad,” Evercore ISI analyst Amit Daryanani wrote in an investor note.
It may also encourage device purchases. He added that “given their vertical integration and especially their control over their own silicon, [Apple] seems best positioned to not only expand the moat surrounding the iOS ecosystem but also drive an accelerated refresh cycle should the final implementation be deemed a big enough change.”
Apple is anticipated to unveil a new iOS version at WWDC in June. While the business hasn't revealed what it's working on, CEO Tim Cook has claimed the company is “incredibly excited about.” Apple has long included neural engines in its iPhone, iPad, and Mac custom CPUs to run AI apps. That may offer the company an edge in on-device generative AI software development. On-device AI software makes generative AI programs easier to access and secure because you don't exchange data online.
Apple has 2.2 billion devices deployed, giving it great potential to build its services business. Apple's services revenue, which includes Apple TV+, AppleCare, and Apple One subscriptions, rose from $68.4 billion in 2021 to $78.1 billion in 2022 and $85.2 billion in 2023. There's more runway, say analysts. In a research note, BofA Global Research analyst Wamsi Mohan forecasts “continued increase in monetization of services [revenue] per installed base device.”
However, Apple's biggest trick is getting people to pay more for iPhones. It's done this by releasing its high-end Pro brand of phones with exclusive features like better cameras and, recently, faster CPUs. The promise of enhanced capabilities encourages people to upgrade to the more expensive Pro iPhones.
Wamsi thinks that, along with selling previous year's iPhones at lower prices, lets Apple make money even in slow iPhone sales. This is crucial as Apple's China sales decline.
“Despite slower unit sales, Apple has been able to drive the mix of units to higher value, which we believe will continue as a long-term trend, offsetting some of the potential unit weakness in China,” he said. While Apple has struggled in early 2024, the corporation still has a lot going for it and nine months to turn things around.
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