Tech giants recognize a massive opportunity with artificial intelligence, leading them to integrate AI features into their devices. This move towards AI-enhanced hardware could spark a larger-than-normal smartphone upgrade cycle this fall, especially following Apple's upcoming event in just weeks, where they are expected to unveil the latest version of the iPhone with AI.
Apple has prepared for increased iPhone orders. A report from Nikkei specifies the world's most valuable company ordered components and parts for between 88 million and 90 million iPhones, compared to initial orders of around 80 million.
One supplier was quoted as saying iPhone orders could exceed 90 million. However, the supplier noted Apple usually orders more units and adjusts production as iPhones go on sale.
"We are quite cautious over Apple's robust orders, as we know the Chinese market is definitely going to provide tough competition due to geopolitics," an executive at one of Apple's suppliers said.
Goldman's Lauren Rowe pointed out to clients, "Overnight an initial knee jerk lower in Tech with Semis and AI stocks initially lagging but subsequently reversed with HK leading in the region with some focus on Apple supply chain on the news of orders for iPhones up 10% versus previous year."
Apple's big event is expected to kick off on September 9. Anticipated product unveilings include the new iPhone 16, Apple Watch Series 10, Apple Watch Ultra 3, and Apple AirPods 4. It's likely Apple executives will provide more color on the AI platform Apple Intelligence
According to Wedbush analyst Dan Ives, the AI-enabled iPhone 16 will unleash Apple's biggest upgrade cycle in history.
"AI is on the doorstep," Ives said, adding, "Our recent Asia checks are giving us more confidence this upgrade cycle will unleash a long-awaited renaissance of growth for Cupertino over the next year."
Ives said the next phase of the consumer AI revolution will involve developers and other tech firms integrating their AI models/tech into Apple Intelligence.
"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," he added.
Goldman's Kash Rangan noted days ago how Apple AI will help "drive an uplift in iPhone demand":
"At WWDC in June 2024, Apple announced Apple Intelligence, a personal intelligence system which includes features including 1) improved Siri capabilities (deeper language understanding, text communication with Siri, tailored responses driven by user activity and information, etc), 2) language features including writing tools that rewrite and summarize text across apps including Mail, Notes, and Pages, and 3) image features including Image Playground (image generation), new Genmojis, improved photo editing features, and more advanced search capabilities within a user's photo library. Apple Intelligence will only be available for the iPhone 15 Pro, iPhone 15 Pro Max, as well as future later models. Apple Intelligence should be released in the fall of 2024 and we believe these features should 1) should drive product upgrades as customers refresh older iPhones to access AI capabilities; 2) continue to drive a mix shift towards premium models, which should drive continued uplift in ASP; and 3) could present an opportunity for an iPhone price increase. Accordingly, we forecast F2024/25/26 iPhone sell-in units of 232/241/257mn (+2/+4/+7% you)."
Apple's stock has risen by nearly 18% this year, reaching $226 per share, which gives the company a market capitalization of approximately $3.4 trillion.
The bigger question is whether consumers are willing to fork over $1,000 or more for new smartphones in a period of elevated inflation and sky-high interest rates, thanks to the Biden-Harris team.