Apple (AAPL) Is On The Cusp Of A Consumer AI Revolution

Apple has been criticized in the past for lagging behind competitors when it comes to AI technology deployment. The company has been slow to launch its Apple Intelligence features in its second biggest market of China and even in the US, the features have only arrived when competitors in other countries have rolled them out in their phones months before.

A busy sidewalk filled with people using Apple devices like iPhones, iPads and Apple Watches.

Why is a company that is known for its innovative technology so slow to adapt to AI? The answer may lie in its dominant industry position. By conservative estimates, Apple has over 1.5 billion iPhones actively being used around the world. These devices often need to be upgraded, which is one way Apple generates revenue. In the last 4 years, 300 million iPhones have been upgraded.

In the present scenario, people have been holding back from upgrading their phones, possibly waiting for AI features to start rolling out. Apple’s competitors who have already launched AI versions of their devices, such as AI PCs, haven’t seen any significant growth. In some cases, the sales have actually gone down despite the launch of AI PCs. It seems people aren’t desperately in need of devices sold in the name of AI. So Apple’s seemingly slow response is fully justified.

One can partly blame inflation and supply chain issues for their struggles earlier in the year. But we firmly believe that Apple is now at the cusp of an AI revolution. As other companies get tired of spending on AI without any decent ROI, Apple’s game seems to be just beginning.

A smart move by Apple relates to the requirement of upgrading to at least iPhone 15 Pro in order to use Apple Intelligence features. This could drive insane demand for upgrades and increase the company’s hardware sales, something analysts are discounting at the moment. This AI-driven upgrade cycle could be the start of the next supercycle for Apple. As the installed user base upgrades their devices, Apple could then move on to monetizing them through its AI software.

Apple’s products usually come with a multi-year roadmap and with the amount of time they have taken to launch AI, we are confident they have much more in their minds than the public has managed to figure out. We’re bullish on the stock and believe it is right at the beginning of another supercycle. The $4 trillion valuation could just be the starting point of that cycle!

Apple is 7th on our latest list of the 31 Most Popular Stocks Among Hedge Funds. As per our database, 160 hedge fund portfolios held AAPL at the end of the third quarter which was 165 in the previous quarter. While we acknowledge the potential of AAPL as a leading investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is as promising as AAPL but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

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