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Apple (AAPL) continues to trend higher, with its stock hitting an all-time high of $260.10 on Dec. 26, pushing the company’s market capitalization even closer to an astounding $4 trillion. This year has been exceptional for Apple investors, with the stock soaring 32% in the year-to-date, significantly outpacing the S&P 500 Index’s ($SPX) 25% return.
Fueling this remarkable rally is growing investor enthusiasm for Apple’s evolving strategy around artificial intelligence (AI). While the tech giant initially lagged behind its peers in AI, Apple is now slowly establishing its presence. The unveiling of “Apple Intelligence” in June, its personal intelligence system combining the power of generative models with personal context and a strategic partnership with ChatGPT, marks a turning point in Apple’s commitment to weaving AI capabilities into its products and services.
During its “Glowtime” event, Apple showcased the much-anticipated iPhone 16 series, Apple Watch Series 10, and AirPods 4. However, the real highlight was the debut of a beta version of AI-powered features integrated into Apple’s ecosystem.
The Apple Intelligence Advantage
The introduction of Apple Intelligence positions the company to benefit from a multi-year, AI-driven upgrade cycle for its iPhone. Further, this innovation could open up new revenue streams through AI-centric apps and services, bolstering Apple’s annual services revenue by billions in the coming years.
Furthermore, the adoption of Apple Intelligence will initially be limited. Only the iPhone 15 Pro and the new iPhone 16 models are likely equipped with the necessary AI processing power to support the technology. This limitation sets the stage for a broader wave of upgrades across Apple’s massive base of active devices.
What’s Ahead for Apple Stock?
Apple’s foray into AI-driven technologies is not just about innovation; it’s a calculated move to strengthen its market position and drive growth. In October, Apple unveiled the initial set of Apple Intelligence features across iPhone, iPad, and Mac devices. These features include systemwide writing tools to refine writing, a more natural and conversational Siri, and enhanced functionalities in the Photos app — such as the ability to create movies simply by typing a description.
Additionally, Apple introduced new notification summaries and priority messages to help users stay focused and organized. Following this, the company rolled out even more advanced features, such as an upgraded visual intelligence experience, more robust writing tools, localized English support for several countries, and ChatGPT integration. All these features expand the capabilities of Apple’s ecosystem.
Looking ahead to 2025, Apple plans to expand Apple Intelligence further by rolling out support for additional languages and introducing new functionalities. This continuous enhancement underscores Apple’s commitment to leveraging AI technology, which will drive product demand.
By seamlessly integrating AI with its devices and services, the company encourages device upgrades and attracts new customers. Its collaboration with ChatGPT introduces exciting revenue opportunities while strengthening its competitive edge.
Higher demand for Apple products is expected to expand its installed base of active devices, which has already hit record highs across all product categories and regions. This increase in active users naturally drives Services revenue, a crucial growth area for Apple.
In the fourth quarter, Services revenue soared to a record-breaking $25 billion, marking a 12% year-over-year increase. With double-digit growth in both developed and emerging markets, Apple is setting records across most Services categories. Integrating AI features will likely enhance customer engagement, driving growth in transacting and paid accounts.
While Apple’s AI strategy creates significant growth opportunities, potential hurdles remain. Broader macroeconomic uncertainties and the Federal Reserve’s slower-than-anticipated interest rate cuts in 2025 have raised concerns about consumers’ discretionary spending.
Moreover, Apple’s recent stock rally suggests that much of the optimism surrounding its AI initiatives has already been factored into its share price. This leaves little room for additional upside unless the company delivers beyond expectations.
Wall Street analysts have given Apple stock a “Moderate Buy” rating. Meanwhile, the stock is currently trading above the average price target set by these analysts.
