Planning "AI+iPhone", will Apple (AAPL.US) still be the "latecomer who seizes the opportunity"?

In the past few years, as valuations have been significantly pushed up, people have started to worry that Apple (AAPL.US) is falling behind competitors like Nvidia (NVDA.US) and Microsoft (MSFT.US) in the field of artificial intelligence. Despite these concerns, Bernstein, an investment bank, believes that this tech giant still has a story to tell on this topic: all based on the iPhone. Apple's growth narrative: Artificial intelligence smartphones The term "artificial intelligence smartphone" is considered somewhat ambiguous, as everyone seems to have a different definition of its actual meaning. However, Bernstein analyst Toni Sacconaghi wrote in an investor report that most people believe that the capabilities of artificial intelligence are largely "progressive" rather than revolutionary. Sacconaghi rates Apple as "market-perform" with a target price of $195. Samsung recently released the Galaxy S24 series and integrated several AI-related features, including photo editing, real-time translation, and photo tagging. Sacconaghi believes that Apple may use AI in similar tasks, but given its ability to integrate software and hardware, it may push this technology further. Sacconaghi wrote, "We expect potential AI features to be largely similar to existing products, including advanced image and video capture/editing tools, translation and transcriptions, enhanced messaging support, improved Siri, and greater music playback automation. We also believe that Apple will more closely and seamlessly integrate its applications to enhance user-friendliness." Sacconaghi said that other AI-specific functions that Apple may include could be related to the next generation Apple chip, expected to be the 3nm A18 chip. Will this help Apple's stock price? The investment community believes that Apple is lagging behind competitors in generative artificial intelligence, despite the company's increased investment in this technology. Apple's market capitalization has been surpassed by Microsoft and Nvidia, with Nvidia's market cap soaring 230% in the past year, becoming a typical representative of generative AI in investors' eyes. Sacconaghi said that even if iPhone's AI features are not unique, the company's marketing power is enough to drive a "substantial upgrade cycle." He added, "We note that Apple was relatively late in introducing large screens, OLED (iPhone X), and 5G compared to peers, but each sparked meaningful upgrade cycles for Apple." He added, "Our analysis shows that for every 100 basis points change in iPhone upgrade rate, about 8 million more phones will be sold, or about $7 billion in iPhone revenue, which will increase iPhone revenue by approximately 300 to 400 basis points in fiscal year 25, leading to an overall revenue growth of 100 to 200 basis points." Sacconaghi added that if Apple further increases the price of iPhone 16 due to AI features (similar to what Google did for Pixel 8 and Pixel 7), sales growth may receive a greater boost. Apple may be gearing up for a counterattack Apple is not a company known for discussing its future products and services, but the company has made firm comments on generative AI in recent records, including in this month's earnings call. Apple CEO Tim Cook said on the earnings call, "In terms of generative AI... as I mentioned earlier, we have a lot of work internally to do, some exciting things that we're really looking forward to discussing later in the year." Sacconaghi pointed out that Cook's recent comments were described as "more specific than his previous statements on earnings calls, indicating more investment and enthusiasm for AI." There have also been some recent media reports citing sources familiar with the matter strongly suggesting that the next version of iOS may be filled with AI-related updates. Citi said that if Apple does inject as many AI features as possible into the next generation iOS system, it is likely to be released at the next developers' conference scheduled for June. The bank emphasized that there are reports that Apple is preparing to launch a generative AI tool for iOS developers to expand the functionality of its Xcode programming software and better compete with Microsoft's GitHub Copilot. It is reported that Apple has been developing this tool last year and has expanded testing of these features internally, ramping up development efforts before planning to release later this year. Apple is also reportedly working on introducing AI features in the next version of macOS and Apple Music (automatically creating playlists) and improving its Spotlight search function.