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Apple: Generative AI Strategy Should Drive Sales and Upgrades

We were pleased with the newly announced Apple Intelligence suite of features.

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We maintain our $170 fair value estimate for shares of Apple AAPL, and view the opening keynote of the company’s worldwide developers’ conference in a positive light. Apple unveiled long-awaited generative artificial intelligence features, grouped under the moniker Apple Intelligence. We continue to have confidence in a strong iPhone upgrade cycle in fiscal 2025, and we make no changes to our forecast or valuation.

Customers will need an iPhone 15 Pro model or better to make full use of Apple Intelligence, which we think should drive new sales and upgrades. The firm also announced upgrades across its device operating systems. Within these upgrades, we liked the focus on customization and privacy. Apple’s stock saw a tepid reaction to the keynote, suggesting expectations for generative AI and the upgrade cycle were baked into share prices. We currently see shares as moderately overvalued.

We were pleased with the newly announced Apple Intelligence suite of features. This is the company’s first foray into the field of generative AI. Apple touted generative AI that is personal, private, and integrated, which aligns with the firm’s overall approach. Upgrades to features mostly fit our expectations, with better Siri functionality, writing assistance using large language models, image generation, and streamlined notifications among the highlights. We were particularly impressed by Siri’s ability to pull data between apps and take actions without redirecting the user.

Apple prioritized on-device model processing, which is more secure for user data. It also announced Apple-operated servers using Apple semiconductors, which can process larger generative AI queries without storing user data. We believe this hybrid approach is practical and fits Apple’s overall privacy strategy. Finally, the firm is partnering with Open AI to integrate ChatGPT into its software for larger questions not tied to a specific application.

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The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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About the Author

William Kerwin, CFA

Equity Analyst
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William Kerwin, CFA, is an equity analyst on the technology team for Morningstar Research Services LLC, a wholly owned subsidiary of Morningstar Inc. He covers the IT supply chain, hardware, and semiconductor stocks.

Before joining the firm full-time in 2019, Kerwin was an intern on Morningstar's basic materials team.

Kerwin holds a Bachelor of Science in economics with a math emphasis and French from the University of Wisconsin-Madison.

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