Apple’s long-awaited artificial-intelligence strategy has plenty of fans among financial analysts. Now it needs consumers to get on board with the idea of upgrading to a new AI-enabled iPhone.
Apple stock was up 5% in Tuesday trading, after a 1.9% loss the previous day. If the stock market wasn’t immediately wowed by itsAI presentation, it at least got cheers from Wall Street.
“The critical piece of information was that the functionality will only be backward compatible to iPhone 15 Pro…which means it could lead to a much-needed iPhone upgrade cycle,” wrote D.A. Davidson analyst Gil Luria in a research note.
Luria raised his rating on Apple to Buy from Neutral and raised his target price on the stock to $230 from $200, based on a price-to-earnings multiple of 30 times his forecast for Apple’s 2025 earnings.
That broader adoption of AI depends on an awful lot of new iPhones being bought. Apple Intelligence will be available only on iPhone 15 Pro and Pro Max models, which by some estimates is just 5% of the current iPhone installed base. Those models currently have a base price of $999 and $1,199 respectively, according to Apple’s website.
They key question is exactly how many phones will be upgraded and how fast. The answer is crucial to Apple’s stock.
“We now have more conviction in our supercycle thesis that could even result in iPhone revenue growth of about 20% for up to 2 years,” wrote Melius Research analyst Ben Reitzes in a research note.
Reitzes noted that consensus expectations are for iPhone revenue to grow by 4% in Apple’s fiscal year 2025 and 2% in fiscal year 2026.
Reitzes has a Buy rating and $227 target price on Apple stock.
Some of Apple’s rivals have already received an AI boost. Samsung’s Galaxy S24 series—which has AI capabilities partially reliant on Google’s models—outsold its predecessor by 8% in its first three weeks of availability, according to Counterpoint Research. Growth in the U.S. was in the midteens percentages.
Raymond James analyst Srini Pajjuri noted that for every 1% of installed iPhones that upgrade to newer models, Apple could see a 20-cent boost to its earnings per share.
“Apple could broaden the availability to mainstream models with iPhone 16 although we expect performance differences could still help the mix in favor of Pro models,” Pajjuri wrote.
Pajjuri has an Outperform rating on Apple stock.
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