Artificial intelligence (AI) has positively impacted the business of many companies, both big and small, allowing them to improve revenue and earnings in multiple ways. While some companies have seen solid acceleration in growth by selling AI hardware and software, others have been able to achieve productivity gains and improve operational efficiency.
This explains why tech giants such as Nvidia, Meta Platforms, Microsoft, Oracle, and Palantir have witnessed a remarkable surge in their share prices in recent years. Apple (AAPL -0.04%), however, is one tech giant that has failed to capitalize quite as well on the AI bandwagon since the arrival of ChatGPT in Nov. 2022.
Let's see why that has been the case so far and check why Apple's fortunes could witness a solid turnaround thanks to AI.
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Apple may have been late to the AI party, but it could still win big from this tech
Apple has built its business over the years by selling consumer electronics devices such as smartphones, tablets, personal computers (PCs), and wearable devices. Though the company has been focusing on boosting its revenue from the services business, it still relies on hardware sales for 71% of its top line. Meanwhile, Apple has failed to keep pace with its rivals in terms of integrating AI into its devices.
Samsung beat Apple in the generative AI smartphone space by launching its Galaxy S24 series in January last year. Apple followed suit with its own AI-capable iPhone in Oct. 2024. The tech giant was late in launching an AI PC as well, since its Apple Intelligence suite of AI features was also made available last October. Additionally, Apple Intelligence witnessed a staggered rollout, hampering the company's sales growth.
However, things are now changing for the better. Apple reported double-digit growth in iPhone sales in its most recent quarter (ended June 28). Its revenue increased at the fastest pace since Dec. 2021. That was impressive considering that customers tend to skip buying iPhones during the June quarter in anticipation of the new iPhone launch that usually takes place in September.
Apple's focus on aggressively rolling out AI features across its devices seems to be bearing fruit. Its iPhone revenue increased 13% year over year during the quarter, while Mac revenue jumped 14%. The trend is likely to continue as the company is adding more features to Apple Intelligence, such as live translation and visual search. It has also added AI features to the Apple Watch.
In all, Apple has added over 20 AI features to its devices. More importantly, the company is now willing to spend aggressively to enhance its AI portfolio. CFO Kevan Parekh announced on Apple's recent earnings call that the company is "increasing our investment significantly in AI." This is precisely what Apple needs right now as other tech giants have been spending big money on the technology.
The addition of more AI features could encourage a bigger chunk of Apple's user base to upgrade their devices, allowing the company to sustain its recently found momentum in this market. After all, the market for generative AI-capable smartphones and PCs is expected to grow at an annual rate of almost 35% through 2029, paving the way for Apple to enjoy healthy growth in these markets in the long run.
At the same time, there are reports suggesting that Apple could consider monetizing its AI features by charging a monthly subscription fee. Given that the company had more than 2.3 billion active devices in January this year, monetizing Apple Intelligence could open up a massive revenue stream for the company.
Stronger growth could result in more upside
Analysts have become bullish about Apple's prospects following its latest results. As you can see with the boost in estimates in early August, they now expect the company to deliver stronger earnings growth in the future
Data by YCharts.
There is a good chance that its actual growth could be better than what analysts are expecting thanks to its AI-focused moves and investments. Meanwhile, this tech stock is trading at 28 times forward earnings, a discount to the tech-focused Nasdaq-100 index's forward earnings multiple of 30.
The market could reward the stock with a richer valuation on account of the potential acceleration in growth, and that could send Apple stock soaring in the long run.
