(News Bulletin 247) – The American bank has raised its advice on Apple to purchase, with the establishment judging that users will change their iPhone for more recent models which will integrate generative artificial intelligence functionalities. She also considers that the legal risks for the group are manageable.

Apple is having a difficult start to the year, which sees the group underperforming the other members of the “magnificent seven of Wall Street” (which also includes Amazon, Alphabet, Meta, Microsoft, Nvidia and Tesla).

The apple group suffered from sluggish sales in China at the start of the year, the risks of opening an antitrust investigation in the United States, and even unconvinced analyst notes. For example, Barclays, which has moved to “underweight” the stock, equivalent to “sell”, is counting on low demand for the iPhone 15 as well as for the future and hypothetical iPhone 16.

This bad patch also led Apple to cede its crown as the world’s largest market capitalization last week to Microsoft, which for its part is riding the wave of generative artificial intelligence (AI), at the heart of conversational robots. like ChatGPT, and one of the big market trends last year.

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iPhone replacement cycle

On Thursday, Bank of America came to the aid of the Cupertino group somewhat, raising its advice from “neutral” to “buy” while raising its price target to 225 dollars from 208 dollars. Which supported Apple, which finished up 3.26% on Wall Street at $188.69 on Thursday evening.

Inviting investors to look beyond the short term, the American bank listed numerous reasons leading it to be more optimistic about the value.

First, Bank of America, contrary to Barclays, estimates that Apple will benefit from a “multi-year upgrade cycle” on iPhones, that is to say that over the next few years iPhone owners will buy new devices to replace an older model. According to a survey conducted by the bank, a still very significant portion of Apple smartphone users currently own an iPhone 12 or even an older model (more than half of the users in the survey).

“In our view, this suggests that Apple is likely to continue to benefit from upgrade demand from owners of older devices, especially as AI-based applications will require more powerful processors “, explains Bank of America.

Especially since, according to her, Apple will include new AI-related features in the future via the launch of the iOS 18 operating system (iOS 17 is the most recent version currently in service).

The group will invest in particular in generative AI, considers the bank. And starting with iPhone 16, Apple could “gradually move from optimizing AI with limited dedicated resources to maximizing AI with dedicated hardware,” she explains. Bank of America believes that the American group could draw inspiration from the elements present in Samsung’s Galaxy S24, such as a recording transcription assistant, real-time translation or even fuel photo editing tools. AI (among other examples).

Vision Pro as strong as iPads?

Another interesting point raised by the bank: the impact of the Vision Pro mixed reality headset unveiled last fall by Apple. If this headset has not really moved the market, the bank judges that this device has the potential to contribute as much or even more to the group’s revenues than the iPad, even if it has not retained a significant impact, in immediately, for the financial year ending at the end of September 2024.

Bank of America also believes that if Apple faces several legal threats in Europe and the United States, these subjects are “manageable” for Tim Cook’s company. Regarding increased competition in China from Huawei and Samsung, the bank believes that Huawei could regain sales to the detriment of Apple in the years to come. “In our opinion, Apple has the opportunity to compensate for this lack of units through sales in other regions, or by lowering the price of the iPhone in China,” he says.

Other factors are prompting Bank of America to upgrade Apple to purchase. The bank is counting on greater growth in the group’s lucrative services division (Apple Pay, Apple Music, Apple TV+ and especially the App store) because the company will be more successful in monetizing its installed base of devices via these services. She also considers that the return to shareholders will remain solid, via dividends and share buybacks. In addition, Apple has significantly underperformed major tech groups and the S&P 500 since last July, which suggests “that a lot of risk is embedded” in market expectations, concludes Bank of America.