Apple Inc. – Throwing its hat into the AI ring June 18, 2024 173

PSR Recommendation: NEUTRAL Status: Downgraded
Target Price: 220.00

Apple held its annual Worldwide Developers Conference on June 10, where the company introduced Apple Intelligence, its AI framework that supports a range of new features that can be integrated across apps to perform tasks. It also unveiled updates to iOS 18, iPadOS 18, WatchOS 11, and MacOS 15 (Sequoia).


• The new features in Apple Intelligence include major AI-centric upgrades on Siri, AIpowered writing tools, custom AI-generated “Genmoji,” and direct access to OpenAI’s chatbot.
• The OS updates include user-centric enhancements that focus on personalization, security, writing tools, calculation, and device synchronization.
• We believe the newly announced features will likely trigger a new round of replacement cycle, as Apple Intelligence is only compatible with the iPhone 15 Pro/Pro Max and iPads and MacBooks with M series chips. Additionally, improved device synchronization is expected to further increase product demand, as people are more motivated to get a MacBook to pair with their iPhone (or an iPhone to pair with their MacBook) to enjoy the synchronization benefits.
• We downgrade to a NEUTRAL rating (from ACCUMULATE) after considering recent share price movements. We increase our target price to US$220 (prev. US$194.00), a WACC of 6.5%, and a terminal growth rate of 3%. We raise our iPhone unit estimates by 8%, and increased FY24e revenue/PATMI estimates by 5%/3% to account for higher upgrade demand for products.


Apple Intelligence

AI-centric upgrade on Siri. Siri is becoming smarter, more natural, relevant, and personal. Updates include: (1) responding to conversational language, (2) ability to cross-reference
information and perform actions across apps (for example, it can extract the event time from an invitation, cross-reference it with your calendar, and use maps to determine if you can
arrive on time), (3) summarize text in mail and other apps, AI writing tools that helps to rewrite & adjust tone of writing and (4) prioritized notifications that surface the ones that requires immediate attention

Image Creation features. Generative AI has been introduced in image generation, offering features such as (1) new Genmoji for creating customized emojis, (2) Image Playground for
generating new images across various apps, (3) advanced search capabilities for videos and photo libraries, and (4) new photo editing tools, including the Clean Up tool.




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Helena Wang
Research Analyst

Helena covers Hardware/Marketplaces/ETF. Helena graduated with a master degree in Financial Technology from Nanyang Technological University

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