Bernstein analysts upped their target price on Apple (NASDAQ:AAPL) shares Friday, noting that investors now believe the iPhone maker “can be a leader in AI, not a laggard.”
The 12-month price objective was raised from $195 to $240, which implies approximately 15% upside from the last closing price.
With over 1 billion customers compared to ChatGPT's 100 million, Apple has the potential to bring AI to a vast audience, improving everyday utility, the investment firm noted. In addition, Apple reportedly does not pay ChatGPT, “highlighting the power that it holds.”
Investors are also increasingly convinced that the iPhone 16 could mark a strong product cycle, partly because AI features will only be available on the iPhone 15 Pro and higher models.
Bernstein analysts believe there are four opportunities for Apple to monetize AI. First, offering on-device AI could accelerate iPhone replacements and boost hardware sales, with each 1% increase in upgrade rates driving a 180 basis point increase in overall revenue.
Second, capturing AI search revenues through advertising, assuming AI search adds to traditional search in large language models (LLMs).
Third, leveraging Apple Intelligence as an intermediary for third-party apps would allow Apple to earn commissions on commerce or promotion fees.
Lastly, ramping up App Store spending if AI drives the development of new AI-based applications.
“While we are increasingly convinced that Apple will be an AI beneficiary, we see risk that the benefits could take longer to materialize than some bulls appear to believe,” analysts said in a note.
“Many features for Apple Intelligence will roll out over the next year, and will only work in English, potentially pushing out some upgrades to the iPhone 17 cycle,” they added.