Apple is about to get a new secret weapon that could lead to juicy returns for investors: AI-focused phones. Analysts at Bank of America are calling them “IntelliPhones,” and in a note on Wednesday they say these powerful devices will be a whole new breed compared to the current crop of smartphones.
Senior equity research analyst Wamsi Mohan and his team described a future where phones will require much more computing power to handle the daily use of ‘AI agents’, which will help with everything from travel booking and real-time translations to planning and guidance . For Apple and its installed base of over 2.2 billion active smartphones, this represents a huge opportunity to provide customers with the latest and greatest AI technology.
“We see the introduction of AI smartphones (IntelliPhones) as a once-in-a-decade upgrade,” Mohan and his team wrote, predicting that “a multi-year upgrade cycle will occur, similar to the incremental improvement in functionality as a result of the introduction of smartphones.”
According to BofA analysts, IntelliPhones will offer consumers a new experience that smartphones cannot compete with, including augmented and virtual reality experiences, health monitoring and more. “As AI technology evolves, the gap between IntelliPhones and traditional smartphones is likely to widen further by offering even more advanced and personalized features that fuel the desire to upgrade,” they wrote.
Apple shares are up just over 7% over the past 12 months, lagging the S&P 500, and especially the booming big tech sector. But now that the age of AI phones is upon us, Bank of America analysts expect a reversal. Mohan and his team reiterated their buy rating and $230 price target for Apple stock on Wednesday. It’s guidance that represents a potential 20% gain for Apple investors over the next twelve months, but that increase would also give the Cupertino-based tech giant a lofty valuation of 30 times earnings in fiscal 2025.
Still, Mohan and his team said they believe a higher valuation “is warranted over a multi-year period [iPhone] upgrade cycle, large cash balance and ability to diversify into new end markets, increasing the mix and diversity of services.”
“We see IntelliPhones dominating edge AI, compared to AI PCs, given their portability, features and cost,” he added.
According to Bank of America, AI developers will be one of the keys to IntelliPhones’ success. Mohan and his team said they believe developers will build AI agents that will run on Apple’s phones, creating “a new layer of revenue generation” for the company.
The comments reflect the AI optimism that CEO Tim Cook described in 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 hardware, software and services integration, breakthrough Apple silicon with our leading neural technology. and our relentless focus on privacy, which underpins everything we create,” he said.
CFRA Research analyst Angelo Zino also maintained his “buy” rating on Apple stock on Tuesday, citing improved iPhone sales prospects in China due to the company’s AI push. After iPhone sales in China faltered in 2022 and 2023 due to rising geopolitical tensions with the US and increased domestic competition, Apple managed to turn things around in April. iPhone sales are up 52% from a year ago to 3.5 million units last month, and Zino believes Apple’s AI ambitions are likely to drive more growth.
“AAPL’s ambitions toward greater AI capabilities ahead of the iPhone 16 launch this fall should appeal to Chinese consumers and also better position them at the higher end of the market,” he wrote.
This story originally appeared on Fortune.com
