Apple (AAPL) is having a difficult 2024. Shares of the company are down some 7% year to date; iPhone sales are slowing in China, its third-largest market; and the European Commission, the European Union's competition watchdog, recently slapped the tech giant with a $2 billion antitrust fine, among other regulatory headwinds. Apple says it will appeal. Oh, and the Department of Justice is also reportedly preparing its own antitrust suit against the Cupertino-based company.
Those headlines are bruising enough to hurt any company. But Apple isn’t just any company. It’s the second-most-valuable publicly traded firm behind rival Microsoft, and it has an installed base of 2.2 billion active devices around the world.
And, according to at least two Wall Street analysts, the company has a few other tricks up its sleeve that will help buoy it in the coming months, including its potential in the generative AI space and the ability to take advantage of its massive user base to goose subscription sales.
Generative AI could be a boon
Wall Street is obsessed with all things generative AI. And while Nvidia and Microsoft seem to be the biggest beneficiaries of the market’s love of the technology, Apple could also stand to gain a good deal from the AI explosion.
“We think [Apple’s] AI strategy will focus on incorporating on-device inference for [large language models] that will substantially uplift the user experience for not only the iPhone but also Mac/iPad,” Evercore ISI analyst Amit Daryanani wrote in a recent investor note.
Plus, it could prompt people to buy new devices. “Given their vertical integration and especially their control over their own silicon, [Apple] seems best positioned to not only expand the moat surrounding the iOS ecosystem but also potentially drive an accelerated refresh cycle should the final implementation be deemed a big enough change,” he added.
Apple is widely expected to debut a new version of its iOS operating system during its WWDC event in June. And while the company hasn’t given any indication about what it’s cooking up, CEO Tim Cook has said that the tech giant is working on something the company is “incredibly excited about.”
Apple has been including neural engines, which help run AI applications, in the custom chips that power its iPhone, iPad, and Mac line of products for years. And that could give the company the upper hand when it comes to developing on-device generative AI software. On-device AI software means easier access to generative AI programs and improved security since you don’t have to share your data over the web.
Services are still a winner
Apple’s massive installed base of 2.2 billion devices also means that it has a huge opportunity to continue growing its services business. Over the last three years, Apple’s annual services revenue, which includes things like subscriptions to Apple TV+, AppleCare, and Apple One, has increased from $68.4 billion in 2021 to $78.1 billion in 2022 and $85.2 billion in 2023. And analysts say there’s still more runway.
According to Daryanani, Apple’s services growth is “underappreciated,” and he expects “growth in the low teens range for [fiscal 2024].”
BofA Global Research analyst Wamsi Mohan offered a similar assessment of Apple’s services business, saying in a research note that he expects to see a “continued increase in monetization of services [revenue] per installed base device.”
Apple gets people to pay more
But one of Apple’s biggest plays is its ability to get people to keep coughing up more and more for its iPhones. It’s managed to do this by rolling out its high-end Pro line of phones and outfitting them with exclusive features such as better cameras and, more recently, more powerful processors. The promise of better capabilities, in turn, gets users to take the step up to the more expensive Pro devices compared to the standard iPhones.
That, coupled with the decision to sell last year’s iPhones at reduced prices, Wamsi said, helps Apple rake in the cash even in years when iPhone sales wane. And that’s especially important at a time when Apple’s sales in China are taking a hit.
“Despite slower unit sales, Apple has been able to drive the mix of units to higher value, which in our opinion will continue as a long-term trend, thereby offsetting some of the potential unit weakness in China,” he explained.
All of that is to say that while the early part of 2024 has been challenging for Apple, the company still has a lot going for it and nine months to turn things around. | 
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