Apple's AI-Powered iPhones Comeback

Apple share price continues to roar ahead on artificial intelligence (AI) capabilities, but is there more to the upside than recent trends?

Defying Newton's Law

Contrary to Newton's gravitational theory that apples fall straight down, Apple's share price has just increased this year, being up almost 20% to date and reaching a new all-time high last week. However, all the gains came in the second quarter following the company's earnings release in May. Earlier in the year, there were concerns that the company was no longer one of the Magnificent Seven, though it has seen a recovery as the northern hemisphere summer began.

On June 10th, Apple formally announced its own AI for iPhones, called Apple Intelligence. Although there had reportedly been rumors in advance of the official announcement, investors were likely positioning themselves ahead of time. There are reasons to believe that AI could drive iPhone sales. The technology only works on the latest iPhone models, meaning users who want AI would need to upgrade their devices. Apple forecasts this trend could result in up to 90 million new devices sold this year, betting the tech will reverse a decline in sales. This is particularly important in China, where geopolitical issues are adding to economic uncertainty from slower growth, making expensive purchases less appealing.

Moving Beyond Hardware

While Apple remains primarily a product company that generates the most revenue from iPhone sales, it has also been diversifying into other areas. These areas show more potential for growth, as the company reported record income from services in the previous quarter, which grew 15% while iPhone sales fell over 10% in the same period. At just 26% of total sales currently, services is far from replacing hardware sales. However, with AI also increasing the demand for digital offerings, the company's growth outlook may be more aligned with this division in the long term.

Overall, fortunes will still rely on broader economic sentiment. After years of high inflation, which is now giving way to rising unemployment, the current environment may not be ideal for consumers to purchase Apple's more expensive products. The company's performance across its main markets, the US and China, will depend on whether economic recovery brings healthier conditions supporting affordable upgrades.

Apple Just Pulling Back

Apple's share price has extended close to the measured-move projection of the $164-$200 correction and has since declined, with further decreases toward $220 expected to offer a point of buying interest. Should it prove supportive, the larger projection of the $123-$183 flag implies a move to $242, exposing $250. However, a break below $220 could allow APPL to approach the round support at $200.

Source: SpreadEx / Apple

Key Takeaways

Apple's share price has increased by 20% this year, reaching a new high on expectations for its AI capabilities. While iPhone sales fell 10% last quarter, services revenue rose 15%. This shows Apple's potential for growth in diversifying beyond hardware. Announcing 'Apple Intelligence' for iPhones, the company expects AI will drive 90 million new device sales by reversing declines. However, economic conditions may challenge consumer spending on expensive products. Apple's performance relies on recovery in the US and China creating environments where upgrades are affordable.