Apple's artificial intelligence offering, Apple Intelligence, was the star of its annual iPhone event on Monday.
But for investors, the slow rollout of Apple Intelligence could pose a problem. While Apple's iPhone 16 hits stores on Sept. 20, the software update required for Apple Intelligence won't be available for US English users until October.
The disconnect between the hardware and software may have been one reason why Apple stock didn't move much on the news. Shares of the iPhone maker were down by about 0.9% during the company's "Glowtime" presentation in Cupertino, Calif., and they were up less than 1% over the three days since the event.
“No huge surprises,” Goldman Sachs senior equity research analyst Michael Ng told Yahoo Finance about the Apple iPhone unveiling. “I think it was straight down the fairway,” he said at the Goldman Sachs Communacopia and Technology Conference on Tuesday.
Ng, who has a Buy rating on Apple, said he's "constructive" on the stock and that its performance is par for the course on iPhone rollout days.
His team estimated that Apple stock has historically underperformed the S&P 500 (^GSPC) by 70 basis points on launch days. On Monday, that underperformance hit 100 basis points, which Ng said was "mostly in line with historic events."
Apple stock tends to perform better a month or even two months out from launch days. Last year, shares of Apple were off by 1% a day after the iPhone 15 was announced. 60 days later, the stock was up 6%, according to Bank of America data. In 2019, shares were up 3% the day after Apple revealed the iPhone 11 and gained 20% over the next two months.
"We think that there's an underappreciated uplift in their normalized earnings power as more people start to upgrade their iPhones," Ng said.
An upgrade cycle sooner or later?
The big question for Apple and its shareholders is whether AI will be enough to drive consumers to upgrade their smartphones.
"There’s a tremendous amount of debate about whether or not AI is going to be that demand driver," Ng said. "I certainly believe that it is."
Ng noted that investors have estimated an iPhone sell-through rate of about 225 million to 230 million units for the year. With some of the new features added, Ng's team sees a run rate closer to 250 million to 260 million units.
Those estimates are driven not just by Apple Intelligence software but also by hardware changes to the phone itself.
"We're going to see several different form factor changes over the next several years," Ng said. "The iPhone 16 Pro and Pro Max have larger screen sizes than the iPhone 15, and the rumors for the next couple of years are that the iPhone 17 will be a thinner device [and] the iPhone 18 has the potential to be a foldable."
Others think Apple's upgrade cycle may take longer to play out as Apple develops its AI capabilities.
"I just think there’s no compelling reason that somebody should run out and buy a new iPhone 16," Needham analyst Laura Martin told Yahoo Finance. "You should wait for the [iPhone] 17 because it’s going to have … cooler stuff and there will be more gen. AI capability."
Apple stock's performance is currently in line with the Nasdaq year to date. Two-thirds of Wall Street analysts have a Buy rating on the stock.
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