Shares of Apple (NASDAQ: AAPL) have lagged the broader market’s return over the past year. One of the issues weighing on the stock is the perception that other tech companies like Alphabet And Microsoft are ahead of the iPhone maker in artificial intelligence (AI).
But Apple is expected to finally reveal its AI plans at the Worldwide Developers Conference (WWDC) on June 10. Investors already appear to be pricing in positive news around the company’s AI initiatives, with shares up 16% in the past month. Let’s look at how AI-enabled iPhones could benefit Apple, and then consider what this means for the stock.
Apple’s AI capability
Apple is very aware of the enormous opportunity to sell more devices with AI, and is investing a lot of money in it. The company has invested more than $100 billion in research and development over the past five years, and is reportedly spending more than $1 billion per year specifically on AI research.
But Apple doesn’t throw money around. Management’s commentary on the latest earnings call shows that it is being very deliberate in how it invests in this technology.
On the company’s second-quarter earnings call, CFO Luca Maestri said: “We have a bit of a hybrid model where we make some of the investments ourselves. In other cases, we share them with our suppliers and partners.” This approach will allow Apple to deliver new AI services to customers without incurring the costs of building a multibillion-dollar AI infrastructure on its own.
Apple is exploring whether it can bring some AI features from third parties like Google to the iPhone. Reports have reportedly been in discussions with Alphabet about introducing generative AI to iPhones. Licensing some technology from Google, which has already built an advanced AI model with Gemini, would be a cost-effective strategy for adding specific software tools to iOS.
Where it makes sense for Apple to invest internally is on the hardware side. Apple is reportedly building its own chips that will perform basic AI tasks locally on the iPhone without sending user data to cloud servers.
Unlike Microsoft and Google, which offer certain AI services to customers through subscriptions to monetize the technology directly, Apple can use AI to increase sales of premium iPhone models.
The next version of iOS is expected to include several AI improvements. It would make iOS 18 the biggest update in years, but some of these features are likely to require Apple’s most advanced mobile chip. It would encourage customers still using older iPhones to upgrade to the current model, boosting Apple’s revenue and margins.
Is the stock a buy?
According to Wall Street consensus, Apple’s earnings will reach $8.01 per share in fiscal 2026. Assuming Apple’s forward price-to-earnings ratio remains the same, investors are looking at an upside of only 30% based on these estimates.
However, these projections may underestimate the impact AI will have on iPhone demand. Investors essentially get a fairly valued stock with the potential to surprise positively.
All things considered, given the stock’s recent underperformance, this could be the right time to buy shares ahead of Apple’s coming AI boom. Investors should remember that diversification is the key to managing risk in their portfolios. While Apple’s potential in AI is promising, it’s smart to balance investments across industries and businesses to mitigate any downturns. And you should also consider many potential investment ideas within the AI market.
Always consider your long-term financial goals and risk tolerance before making any investment decisions.
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Suzanne Frey, a director at Alphabet, is a member of The Motley Fool’s board of directors. John Ballard has no position in any of the stocks mentioned. The Motley Fool holds positions in and recommends Alphabet, Apple, and Microsoft. The Motley Fool recommends the following options: long January 2026 $395 calls to Microsoft and short January 2026 $405 calls to Microsoft. The Motley Fool has a disclosure policy.
Should You Buy Apple Stock Before June 10? was originally published by The Motley Fool
