Apple is getting a once-in-a-decade secret weapon: AI-enabled intelliphones: Bank of America sees its stock rising 20%

Apple is about to get a new secret weapon that could generate juicy returns for investors: phones focused on artificial intelligence. Analysts at Bank of America call them “IntelliPhones” and in a note on Wednesday argued that these high-powered devices will be a completely new generation compared to the current series of smartphones.

Senior equity research analyst Wamsi Mohan and his team described a future in which phones will need much more computing power to handle the daily use of “AI agents” that will help with everything from booking rides and translating in real time. to programming and tutoring. For Apple and its installed base of more than 2.2 billion active smartphones, that means a huge opportunity to sell customers the latest and greatest AI technology.

“We view the introduction of AI-enabled smartphones (IntelliPhones) as a once-in-a-decade refresh event,” Mohan and his team wrote, predicting “a multi-year refresh cycle similar to the stepped feature upgrade.” driven by the introduction of smartphones.

IntelliPhones are set to offer a new experience to consumers that smartphones won’t be able to compete with, including virtual and augmented reality experiences, health monitoring and more, according to BofA analysts. “As AI technology evolves, the gap between IntelliPhones and traditional smartphones is likely to widen further by offering even more sophisticated and personalized features that drive the desire to upgrade,” they wrote.

Apple shares are up just over 7% over the past 12 months, lagging the S&P 500 and, in particular, the growing technology sector. But with the era of artificial intelligence phones on the horizon, Bank of America analysts expect a change. Mohan and his team on Wednesday reiterated their “buy” rating and a $230 price target on Apple shares. It’s an outlook that represents a potential 20% gain for Apple investors over the next 12 months, but that increase would also leave the Cupertino-based tech giant with a lofty valuation of 30 times its fiscal 2025 earnings.

Still, Mohan and his team said they believe a higher valuation “is justified given a multi-year upgrade cycle (iPhone), a large cash balance and the opportunity to diversify into new end markets, increasing mix and diversity.” of services”.

“We see IntelliPhones dominating cutting-edge AI, compared to AI PCs, given their portability, features and cost,” he added.

One of the keys to the success of IntelliPhones will be AI developers, according to Bank of America. Mohan and his team said they believe developers will create artificial intelligence agents that will run on Apple phones, creating “a new layer of monetization” for the company.

The comments echo the optimism about AI that CEO Tim Cook outlined on Apple’s May 2 earnings call. “We believe in the transformative power and promise of AI, and we believe we have advantages that will differentiate us in this new era, including Apple’s unique combination of seamless integration of hardware, software and services, innovative Apple silicon with our technology industry-leading neural engines and our unwavering focus on privacy, which underpins everything we create,” he said.

CFRA Research analyst Angelo Zino on Tuesday also maintained his “buy” rating on Apple shares, citing improved prospects for iPhone sales in China due to the company’s AI push. After iPhone sales in China faltered in 2022 and 2023 amid rising geopolitical tensions with the United States and increased domestic competition, Apple managed to turn things around in April. iPhone sales rose 52% from a year ago to 3.5 million units last month, and Zino believes Apple’s AI ambitions are likely to drive further growth.

“AAPL’s ambitions to achieve greater AI capabilities ahead of the iPhone 16 launch this fall should appeal to Chinese consumers and also better position it at the high end of the market,” he wrote.

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