Apple (
AAPL) recently revealed its partnership with OpenAI to include its chatbot, ChatGPT, with its voice assistant Siri. While some investors were unimpressed, others felt this will be a turning point for Apple.
D.A. Davidson Managing Director Gil Luria joins The Morning Brief to give insight into Apple's latest development, why he feels bullish over this announcement, and why he feels it will be a catalyst for iPhone sales.
"We think that the consensus estimate was for iPhone to grow about 5% next year, with the year that includes the new iPhone 16. We actually increased our numbers to 10%. The growth for iPhone 12 was far higher than that," Luria says. "We think 10% reflects the fact that this is compelling and that you will need to use a new phone in order to be able to use all these AI capabilities that are now interwoven in the entire iPhone experience."
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Related Videos This post was written by Nicholas Jacobino Video Transcript Our next guest is feeling bullish, upgrading the tech giant from neutral to buy and raising his price target from 200 bucks a share to $230.
GD A Davidson managing director joins us.
Now with more G, let's start with the share price action.
We saw shares closed down about 2%.
Yesterday were pretty muted right now.
Is this is all the news event or what do you think was missing here for investors?
Well, I think there was a lot of noise.
Uh A lot of people have very strong opinions about Apple and its products and were maybe had expectations for something that would blow them away and be unprecedented.
That's not what Apple needed to do.
Apple.
What they did yesterday was exactly what you described.
They took all this technology that's been delivered developed over the last year and a half and integrated and personalize it into their platform.
What that means is that a lot of this functionality that right now we have to use away from our uh uh uh other applications.
We have to go outside of our application to go to cha GP T or perplexity.
Or claw will now be seamlessly integrated into the applications we already use.
That means we're gonna go from hundreds of millions of people using generative A I to billions of people as soon as this is introduced.
And that's what's gonna drive an iphone upgrade cycle for the first time in four years.
That's what's important here.
A lot of noise, a lot of people with different expectations coming in.
But if you look at the signal away from the noise, you realize that this is unprecedented capabilities that Apple is gonna introduce and it's going to integrate A I into everyday life.
Yeah.
And I mean, even as we're thinking about the iphone and what this new kind of super cycle is that could be driven because of generative A I being integrated into this consumer technology products.
It also comes back to where this is going to create a new base run rate for services.
How do you see that playing into the revenue model there?
That's right.
The services business is already growing double digits because Apple can offer more and more things to its installed base.
But that hasn't been enough for more than low single digit growth.
The last couple of years for Apple, the stock to work growth has to accelerate from here.
And the only way that happens is if iphone sales accelerate the last time that happened was iphone 12.
Why?
Because they introduced five G capabilities which were compelling and it wasn't backward compatible.
The stock tripled around that introduction and it's been practically flat for the last three years since then.
Now we finally have something that's compelling.
The functionality yesterday.
When consumers have it in their hands are gonna be very excited about it and it's not backward compatible.
You have to have at least iphone 15 pro or newer in order for it to work.
So, as people buy new phones this holiday season, they're gonna see this great functionality.
They're gonna show their friends and family and the product upgrade cycle will happen over the next few months and quarters.
So gil you see this driving the upgrade cycle, where do you see that growth potentially topping out?
Well, we think that the consensus estimate was for iphone to grow about 5% next year with the year that includes the new iphone 16, we actually increased our numbers to 10%.
The growth for iphone 12 was far higher than that.
We think 10% reflects the fact that this is compelling and that you will need to use a new phone in order to be able to use all these A I capabilities that are now interwoven in the entire iphone experience.