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The artificial intelligence (AI) revolution is just heating up. To raise the stakes in this race, most tech companies with the necessary capital and resources have integrated AI into their existing products or developed new ones.
Nvidia (NVDA), the chip giant, has emerged as a dominant player in the AI race, with revenue and earnings skyrocketing. While Nvidia's position remains seemingly unshakeable, at least one analyst believes differently.
Last month, Citi analyst Atif Malik stated that the AI revolution is now reaching its final stage, which is execution and devices. Per the analyst, the first two phases of AI were about planning and implementing with chips, servers, networking, and storage. The third and final stage, says Malik, will involve the creation of AI-integrated devices.
And Malik anticipates that while chip giant Nvidia dominated the early stages of the AI era, Apple (AAPL) will surpass Nvidia as the top AI stock by 2025. Let's find out why Citi thinks so.
Why Does Citi Think Apple Can Overshadow Nvidia?
Apple does not really need an introduction. It's one of the most well-known and beloved brands around the world. Its products, including the iPhone, iPad, Mac, Apple Watch, and Air Pods, are known for their sleek designs, innovative features, and ecosystem integration. Apple also has a growing services business, which includes the App Store, iCloud, Apple Pay, Apple Music, and Apple TV+.
Apple's ability to diversify its revenue streams while maintaining a loyal customer base has made it a dominant player in the technology industry. Apple stock has been an outstanding performer, returning around 760.7% over the last decade.
On Sept. 9, the company released the highly anticipated new iPhone 16 Pro and iPhone 16 Pro Max. Even if Apple does not provide significant upgrades, the release of new iPhones every year is always met with enthusiasm. However, Citi analysts believe the situation may be different this time.
The A18 Pro chip powers the iPhone 16 and includes Apple Intelligence, a new feature in this year's launch. Furthermore, the company claims that the Pro line has "larger display sizes, new creative capabilities with innovative pro camera features, stunning graphics for immersive gaming, better battery life, and more." Apple also specified that the new iPhones have a significantly longer battery life, which has always been a complaint about most Apple products.
Pre-orders have already begun, but investors have largely sold the news so far. Apple’s stock has gained 14.7% year-to-date, compared to the tech-heavy Nasdaq Composite’s ($NASX) gain of 17.4%.
Last month, Malik predicted that Apple's new AI-powered iPhones would spark a significant upgrade cycle for the company, but is primarily looking ahead to longer-term upside. Malik went on to say, "While the iPhone 16 will kick off Apple's AI-era, it's really the 2025 release of the iPhone 17 that will drive a coming sales boom."
Malik expects the company to sell "85 million iPhone 16 units in 2024 and 92 million iPhone 17 units in 2025." Overall, the company will sell 228 million iPhones in 2024 and 241 million in 2025, according to his estimates.
Following the launch, Wedbush analyst Dan Ives raised Apple's target price to $300, citing expectations that the iPhone 16 launch will increase its market capitalization to $4 trillion by 2025. Apple is currently sitting at a $3.3 trillion market cap.
According to Ives, approximately 300 million iPhone users have not upgraded their phones. The reason I believe could be because Apple has not provided any impressive or significant upgrades in recent years. However, Ives estimates that pent-up demand and Apple Intelligence-powered new iPhones will result in 240 million unit sales by 2025.
Furthermore, Ives believes China could be a key growth driver, citing Apple's plan to "partner with Baidu for a large language model to fuel its Apple Intelligence features."
In the most recent third quarter, Apple's total revenue increased by 5% year on year to $85.8 billion, with earnings up 11%. iPhones account for the majority of total sales among all of its products. iPhone sales fell 0.9% in Q3 to $39.3 billion. While investors seem disappointed by the lack of an immediate sales surge, the AI-powered iPhone 16 and the following line-up could significantly increase iPhone sales in the coming years.
What Do Other Analysts Say About Apple?
On average, analysts predict that Apple's revenue will rise by 1.8% in 2024 to $390.5 billion. Revenue could further increase by 7.6% in 2025, as the company gradually rolls out more AI features with the iPhone 17 next year. Earnings could rise by 9.1% in 2024, to $6.69 per share, and 10.8% in 2025, to $7.41.
Recently, Bernstein analyst Toni Sacconaghi reiterated his "outperform" rating for Apple stock. Sacconaghi believes that, despite investor concerns about the new iPhone wait times, Apple Intelligence and additional AI features will drive the company's financials in the coming years. The analyst expects a "stronger iPhone 17 cycle" next year, and has set a price target of $240 for AAPL.
Similarly, Bank of America Securities gave AAPL a "buy" rating and a price target of $256.
Overall, AAPL stock is a “moderate buy” on Wall Street. Of the 31 analysts following Apple stock, 18 have a “strong buy” recommendation, four suggest a “moderate buy,” eight rate it a “hold,” and one recommends a “strong sell.”
Based on analysts' average price target of $247.08, Wall Street expects a potential upside of about 12% in the next 12 months. The highest target price stands at $300, which suggests the stock could climb as much as 35.7% from current levels.
Priced at 29x forward 2025 earnings, the company is a tad bit expensive. Only time will tell whether Apple will triumph over Nvidia. However, given Apple's reputation, brand strength, and thirst for innovation with AI, the iPhone giant may be able to maintain its position as the leading tech company.
On the date of publication, Sushree Mohanty did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
