Apple Intelligence, Apple’s artificial intelligence offering, was the star of Monday’s annual iPhone event.
But for investors, the slow rollout of Apple Intelligence could pose a problem. While Apple’s iPhone 16 hits stores on September 20, the software update required for Apple Intelligence won’t be available to US English users until October.
The disconnect between hardware and software may have been one reason Apple shares didn’t move much on the news. Shares of the iPhone maker fell about 0.9% during the company’s “Glowtime” presentation in Cupertino, California, and have gained less than 1% in the three days since the event.
“No big surprises,” Michael Ng, senior equity research analyst at Goldman Sachs, told Yahoo Finance about Apple’s iPhone unveiling. “I think it was right on the fairway,” he said Tuesday at the Goldman Sachs Communacopia and Technology Conference.
Ng, who has a Buy rating on Apple, said he is “constructive” on the stock and that its performance is normal on iPhone launch days.
His team estimated that Apple shares historically underperformed the S&P 500 (^GSPC) by 70 basis points on launch days. On Monday, that underperformance reached 100 basis points, which Ng said was “broadly in line with historical events.”
Apple shares tend to perform better a month or even two months after launch. Last year, Apple shares fell 1% the day after the iPhone 15 was announced. Sixty days later, the stock rose 6%, according to data from Bank of America. In 2019, shares rose 3% the day after Apple unveiled the iPhone 11 and gained 20% in the following two months.
“We think there is an understated increase in their normalized earnings power as more people upgrade their iPhones,” Ng said.
An upgrade cycle, sooner or later?
The big question for Apple and its shareholders is whether AI will be enough to convince consumers to upgrade their smartphones.
“There’s a huge amount of debate about whether AI is going to be that demand driver,” Ng said. “I certainly believe it is.”
Ng noted that investors have estimated an iPhone sales pace of around 225 million to 230 million units for the year. With some new features added, Ng’s team sees a run rate closer to 250 million to 260 million units.
These estimates are based not only on Apple Intelligence software, but also on hardware changes to the phone itself.
“We’re going to see a lot of changes in the form factor over the next few years,” Ng said. “The iPhone 16 Pro and Pro Max have larger screen sizes than the iPhone 15, and the rumors for the next couple of years are that the iPhone 17 will be a thinner device [and] The iPhone 18 has the potential to be foldable.”
Others believe Apple’s upgrade cycle will be longer as Apple further develops its AI capabilities.
“I just don’t think there’s a compelling reason why anyone should buy a new iPhone 16,” Needham analyst Laura Martin told Yahoo Finance. “You have to wait until the [iPhone] 17 because it will have… cooler stuff and more gen. AI capability.”
Apple shares are currently performing in line with the Nasdaq year-to-date, with two-thirds of Wall Street analysts rating the stock Buy.
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