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AI iPhone hype boosts Apple’s valuation to $3 trillion ahead of WWDC

Topline

Apple’s Worldwide Developers Conference next week will shed light on whether the iPhone maker’s stature in artificial intelligence is indeed on par with that of its more fashionable Silicon Valley peers, analysts at JPMorgan in a note Tuesday, as investors eagerly await what some expect to come next. major event that will boost declining iPhone sales.

Key facts

Apple’s annual event will “highlight whether Apple has successfully caught up with the rest of the industry despite a perceived slowdown in AI investment,” said JPMorgan’s Samik Chatterjee.

Chatterjee said he expects the WWDC event to “successfully catalyze an upgrade cycle” for the iPhone, a much-needed tailwind for Apple as iPhone sales are expected to be the weakest since 2020 during the current quarter, according to consensus analyst forecasts prepared by FactSet.

Chatterjee added that he expects the upgrade cycle, in which the estimated 1.5 billion iPhone users will trade in their existing smartphones for the latest model, to begin this year before accelerating in 2025 as macroeconomic conditions are likely to improve and consumers will become hungrier for AI-heavy smartphones. .

The main focus at WWDC will be whether Apple reveals it will be ready to launch generative AI in iPhone-specific applications like Siri and iMessage by September, Chatterjee said.

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Crucial quote

If WWDC has an impact on Apple stock given the AI ​​hype. “Historically, WWDC has not been a material stock catalyst for Apple…we think this year will be different as Apple formally enters the Gen AI race,” Morgan Stanley analysts led by Erik Woodring predicted.

What to pay attention to

If WWDC has an impact on Apple stock given the AI ​​hype. “Historically, WWDC has not been a material stock catalyst for Apple…we think this year will be different as Apple formally enters the Gen AI race,” Morgan Stanley analysts led by Erik Woodring predicted.

Important background

Shares of Apple fell slightly in Tuesday trading but are still within 1% of reaching a $3 trillion market cap for the first time since January. Last year has been an unusually cool period for Apple investors, as the stock’s 7% return is worse than the S&P 500 and rivals Microsoft’s 23% return. Microsoft, which overtook Apple as the world’s most valuable company earlier this year, has translated the intense interest in AI into profit growth more tangibly than Apple, with first-quarter net profit 20% higher than the same period in 2023, much better than Apple’s net growth of -2%. Apple has been fairly quiet in discussing its AI offerings to the public, although CEO Tim Cook said in February that the company has put a “tremendous amount of time and effort” into generative AI. Aside from the unrest over Apple’s unclear route to monetizing AI, the biggest point of frustration among investors has been the decline in its core China operations, with sales in the region expected to be 7% lower than expected, according to FactSet the record of $74.2 billion in 2022.

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