On Friday, Mizuho analysts highlighted Apple's focus on artificial intelligence (AI) services as a key aspect of its strategy for the upcoming iPhone 16.
The development of AI services is expected to drive demand for various components including application processors, cameras, sensors, microphones, DRAM, and batteries. Despite the pressure to keep the bill of materials (BOM) costs low, an anticipated early drop in DRAM prices in the first quarter of 2025 is predicted to have favorable effects beyond DRAM costs.
The analysts also pointed to the introduction of Apple's in-house modems, which will start with the iPhone SE4 in 2025 and is anticipated to extend to the iPhone 18. This move is likely to affect the value chain significantly. Additionally, the expected adoption of foldable OLED technology in 2027 is set to potentially spur growth in G6 OLED investment.
The expansion of AI services is believed to encourage consumers to upgrade their devices more frequently, which could gradually increase the demand for new devices. While the upgrade cycle's frequency may remain unchanged, the value of AI services, including time savings, increased convenience, and new functionalities, will be a factor that needs further evaluation to understand its true impact.
In other recent news, Apple Inc (NASDAQ:AAPL). has shown robust growth in App Store revenues, contributing to a quarterly growth rate of 13% as reported by Evercore ISI. This performance is projected to bolster Apple's Services revenue growth, which is expected to rise by approximately 14%. BofA Securities and JPMorgan have maintained their positive outlook on Apple, with BofA reiterating a Buy rating due to stable EU downloads and JPMorgan holding an Overweight rating despite a slight moderation in near-term iPhone unit forecasts.
In light of recent developments, Apple is gearing up for the production of a new iPhone SE and iPad Air models. No official statements regarding the specifications, pricing, or release dates for these devices have been released. Additionally, the National Labor Relations Board (NLRB) has filed a complaint against Apple, alleging the company of implementing illegal workplace rules that interfere with employees' rights to organize and advocate for improved working conditions.
Lastly, Apple's supply chain might face disruptions due to a recent fire at a Tata Group facility in Tamil Nadu, which has halted the production of iPhone components.
InvestingPro Insights
Apple's focus on AI services and component innovations aligns with its strong market position and financial performance. According to InvestingPro data, Apple boasts a substantial market capitalization of $3.43 trillion, reflecting investor confidence in its growth strategy. The company's revenue for the last twelve months stands at $385.6 billion, with a healthy gross profit margin of 45.96%, indicating efficient cost management despite potential BOM pressures mentioned in the article.
InvestingPro Tips highlight Apple's strength as a "prominent player in the Technology Hardware, Storage & Peripherals industry," which supports its ability to innovate in areas like AI services and in-house modems. The company's financial stability is further underscored by its ability to maintain dividend payments for 13 consecutive years, suggesting a balance between reinvestment in technology and shareholder returns.
The anticipated upgrades in iPhone components and AI capabilities could justify Apple's current valuation metrics. With a P/E ratio of 33.88 and trading near its 52-week high, the market appears to be pricing in future growth from these innovations. Investors seeking more comprehensive analysis can access 16 additional InvestingPro Tips, offering deeper insights into Apple's financial health and market position.
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