Apple’s AI Ambitions: A Boost to iPhone Sales or Just Hype?
Despite the lukewarm reception of Apple Intelligence, the company’s phone-based AI service, Apple’s stock has been on a tear, gaining over 50% since April. The optimism surrounding Apple is palpable, with the company reclaiming its spot as the world’s most valuable company.
The Bull Case for Apple
JPMorgan’s Samik Chatterjee believes that Apple’s AI features will eventually pay off, predicting a surge in iPhone sales with the expected launch of the iPhone 17 in 2025. He forecasts sales to jump from 230 million units to 251 million phones in the following 12 months. Even if this prediction doesn’t materialize, Chatterjee argues that Apple’s services business will provide a strong foundation for the stock.
Services: The Unsung Hero
Apple’s services segment, including technical support, content, and payment products, is often overlooked but provides a resilient revenue stream. Chatterjee claims that this segment will continue to grow, providing a buffer against flagging iPhone sales.
Warren Buffett’s Skepticism
Famed investor Warren Buffett’s decision to downsize his position in Apple has raised eyebrows, sparking speculation about the stock’s valuation. However, it’s worth noting that Buffett still holds a significant stake in the company.
Valuation Concerns
Apple currently trades at around 34 times its projected earnings, making it more expensive than most of its tech giant peers. Chatterjee maintains a $265 price target, implying a P/E ratio of 27 based on his earnings projections for 2026. He believes the multiple is justified, citing the company’s historical average multiple.
Limited Downside for iPhone Sales
Chatterjee sees limited downside for iPhone sales, even if AI interest wanes. He points to the low replacement rate as a percentage of the installed base, which limits downside to volumes. Additionally, fiscal stimulus and monetary easing in China could lead to an uptick in consumer spending.
Earnings Growth Ahead
Chatterjee expects expanding margins and share buybacks to propel earnings growth above increases in revenue, even without AI tailwinds. With Apple’s services business providing a strong foundation, the company’s stock may continue to defy expectations.
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