Apple Poised for Best Week Since 2021 on Hopes AI iPhones Are Essential

Apple Investors Embrace AI Integration, Propel Stock to New Heights

In a significant boost for Apple Inc., investors have responded positively to the company’s newly revealed plans for using artificial intelligence (AI), pushing its stock toward its best week in over two years. Wall Street’s optimism has been fueled by Apple’s integration of AI features in its new iPhone lineup, which includes a partnership with OpenAI to incorporate ChatGPT.

Apple's strategic move is expected to ignite a substantial upgrade cycle among users of older devices. According to Jim Awad of Clearstead Advisors, the market now has more confidence that Apple is poised for competitive growth, which will likely see a revival in its stock performance. Since April, Apple’s stock has surged, adding over $700 billion in market value, with buy ratings nearing their highest since 2017.

AI-Driven Market Cap Milestones

The surge has been so impactful that Apple has surpassed Microsoft Corp. to reclaim its position as the largest company by market capitalization. This reshuffling marks a significant moment for Apple, which was trailing both Microsoft and Nvidia Corp. earlier this week. Investors seem to be betting big on AI advancements prompting an upgrade cycle among Apple users.

Despite this optimism, Apple had faced scrutiny for its perceived lack of an AI strategy, especially given its relatively stagnant growth compared to other technology giants. In Apple's fiscal second quarter, revenue saw a 4.3% decline, marking the fifth decline in six quarters. However, the company continues to trade at a premium, with its valuation sitting at about 30 times estimated earnings, compared to the Nasdaq 100 Index's approximate 27 times multiple.

The Future of the iPhone

The iPhone remains Apple’s cornerstone, making up over half of the company’s fiscal 2023 revenue. However, iPhone sales dipped by 2% last year, partly because many users are holding onto their older devices. Proponents of the new AI features argue these will be compelling enough to trigger a significant upgrade cycle.

Robert Pavlik of Dakota Wealth Management notes that initial skepticism is fading as more investors come to view AI as the next big innovation driving iPhone sales. While the impact of these features will take time to materialize in sales figures, the potential for growth could make Apple’s stock appear undervalued.

Data from Bloomberg Intelligence suggests a vast potential upgrade market, with over 40% of Apple’s more than 800 million smartphones being iPhone 12 or older. Ben Reitzes of Melius Research underlined that older models would become obsolete for users desiring AI functionalities, further supporting an optimistic outlook for iPhone sales.

Ripple Effects on Suppliers

This anticipated iPhone refresh cycle has also positively impacted Apple’s suppliers. Companies like Skyworks Solutions Inc., Cirrus Logic Inc., and Qorvo Inc. have seen significant stock gains this week. Patrick Gil Luria from D.A. Davidson upgraded their rating on Apple, emphasizing that the company's ability to integrate AI features like enhanced search and photo editing positions it uniquely in the market.

Technological Dominance

The increasing prominence of Apple, Microsoft, and Nvidia in equity indexes highlights the dominance of technology in the market. The tech sector now comprises 32.6% of the S&P 500, a peak not seen since the dot-com boom era in 2000, with these three tech giants making up about 21% of the index collectively.

Other Tech News

Beyond Apple, the tech sector has been witnessing significant developments. Tesla Inc. shareholders are backing CEO Elon Musk despite recent sales declines and stock drops. Adobe Inc. shares have surged following strong projections for its AI-powered creative products. Meanwhile, the French government is negotiating a significant acquisition in Atos SE's big data and security unit, and Snowflake Inc. plans to conclude its investigation into a recent hacking campaign.