Apple plans to unveil its iPhone 16 handsets at a product launch event on Monday. The big question for Apple stockholders is: Will the new smartphone lineup spur iPhone users to upgrade their handsets?
The iPhone 16 series will be Apple's 18th-generation smartphone family but its first to come integrated with Apple's flavor of artificial intelligence, branded Apple Intelligence. Apple AI will use both on-device and data-center processing with a focus on privacy and security.
The centerpiece of Apple's AI strategy is a revamped Siri digital assistant, which responds to voice and text prompts. With AI smarts, Siri will be able to work across apps and retrieve information from messages, emails, calendar, photos and other apps. It also can summarize emails and web pages and transcribe calls, as well as generate custom emoji and other images.
Initially Apple Intelligence will use OpenAI's ChatGPT and Apple's own AI models. But the company said it plans to add other third-party AI models in the future.
In addition to new iPhones, Apple is likely to unveil its latest Apple Watch smartwatches and new AirPods wireless earbuds.
Apple is promoting its fall product launch with the tagline "It's Glowtime." That could be a nod to the brighter displays expected for the new iPhones.
Pent-Up Demand For iPhone Upgrades
Morgan Stanley analyst Erik Woodring said he expects Apple's event to "heavily feature AI integration on the new iPhone 16."
"Apple Intelligence remains the key to unlocking pent-up iPhone demand and accelerating (the) replacement cycle," Woodring said in a recent client note. The new handsets will require a more powerful processor and increased DRAM, or dynamic random-access memory, for AI, he said.
While the AI features of the iPhone 16 will be closely watched, pricing and battery life details will be critical factors influencing purchases, he said.
The new smartphones could feature thinner bezels and slightly larger displays, he said. The iPhone 16 also could see the addition of a "capture button," which would act similar to a shutter button on a digital camera for taking photos and videos.
Woodring rates Apple stock as overweight, or buy, with a price target of 273.
Apple stock ended regular-session trading on Wednesday at 220.85. In a negative sign, Apple shares closed beneath their 50-day moving average line, a key support level.
Supercycle Of Upgrades Predicted
Wedbush Securities analyst Daniel Ives thinks the iPhone 16 will kick off a "supercycle" of upgrade activity among iPhone users.
"We are seeing more indications across the Asia supply chain over the past few weeks (that) this iPhone upgrade cycle could be a historical one, setting the stage for a supercycle as currently we estimate roughly 300 million iPhones globally have not upgraded in over 4 years," Ives said in a client note.
Ives rates Apple stock as outperform with a price target of 285.
Apple's AI strategy will gain steam as software developers create AI-enabled apps for the iPhone 16 in the months after its launch, he said.
"We expect developers over the next 6 to 12 months will build hundreds of generative AI-driven apps that will be key ingredients in the recipe for success for Apple as its technology stack creates the core building blocks of the consumer AI tidal wave we see coming starting with iPhone 16," Ives said. And those apps also will drive high-margin services revenue for Apple, he said.
Loop Capital analyst John Donovan said evidence from the supply chain supports "exuberance" for the coming iPhone 16 cycle.
Donovan rates Apple stock as buy with a price target of 300.
Apple's supply chain also is hoping for a successful launch of the iPhone 16 series. Component suppliers benefiting from iPhone business include chipmakers Taiwan Semiconductor Manufacturing, Cirrus Logic, Skyworks Solutions, Qorvo, Qualcomm and Broadcom.
Some Analysts Are Skeptical
Not all Wall Street analysts are convinced that the iPhone 16 series will drive a big upgrade cycle.
"We actually think the 2025 and 2026 iPhones are the much bigger upgrades with new silicon and additional form factors," Melius Research analyst Ben Reitzes said in a client note. The iPhone 16 "is a lot like the iPhone 15," he said.
Reitzes added, "What matters most in this announcement is any incremental news around features and the timing of regional availability for Apple Intelligence."
The rollout of Apple Intelligence features will be staggered with software updates throughout the rest of the year and into 2025.
Also, Apple's AI features will be available only to "U.S. English" users this fall, with support for other languages coming later.
Reitzes rates Apple stock as buy with a price target of 265.
No 'Killer App' For Apple AI
UBS analyst David Vogt is more skeptical about the prospects for the iPhone 16.
"While the market is bullish on the possibility of a strong replacement cycle, we don't view the AI-related offerings as compelling enough in the near term to drive significant demand, particularly given regional headwinds like increased competitive pressure in China and regulatory hurdles in the EU and China that are not likely to be resolved in the near term limiting the geographic reach of Apple Intelligence."
Vogt rates Apple stock as neutral with 12-month price target of 236.
Piper Sandler analyst Matt Farrell also splashed cold water on the product launch.
"From recent news reports, it doesn't appear that there will be any revolutionary hardware innovations as a part of the iPhone 16," Farrell said in a client note. "So, if Apple Intelligence can be the 'star of the show,' we would view it as an incremental positive for the 'super cycle' thesis."
However, Apple has yet to present a "killer app" for its consumer AI offering, he said.
"While we acknowledge it is early, we would like to see more use case examples and 'game-changing' features in order for it to be a needle mover on this cycle," Farrell said.
Farrell has a neutral rating on Apple stock with a price target of 225.
IPhone 16 Is One Entrant In AI Smartphone Market
But Apple isn't alone in coming out with AI-enabled smartphones.
Samsung's Galaxy S24 handsets have AI capabilities. As does Alphabet's latest Google Pixel smartphones.
Chinese handset vendors Oppo, Vivo and Xiaomi also are touting AI-enabled smartphones. Another Chinese firm, Huawei, plans to introduce new smartphones just hours after the Apple iPhone 16 launch event.
Research firm IDC predicts that generative AI-enabled smartphones will grab 19% of the global smartphone market this year. It forecasts shipments of 234 million Gen AI smartphones in 2024.
IDC sees Gen AI smartphones exceeding 60% market penetration within the first three years of availability.
Apple Stock Is On Tech Leaders List
Apple stock has been consolidating for the past eight weeks with a buy point of 237.23, according to IBD MarketSurge charts. But Apple shares have fallen recently amid broader market concerns about a slowing economy in the U.S. as well as in China.
The iPhone 16 launch event is likely the next catalyst for Apple stock.
Further, Apple stock is on the IBD Tech Leaders list.
Follow Patrick Seitz on X, formerly Twitter, at @IBD_PSeitz for more stories on consumer technology, software and semiconductor stocks.
