Analysts at Bank of America see Apple Inc (NASDAQ:AAPL, ETR:APC)'s Services offering as a key growth driver poised to benefit from the iPhone maker’s rollout of its AI system Apple Intelligence.
“Apple's recent announcement to integrate AI into its operating systems and give third-party developers deep access to features including Siri should drive significant innovation from developers,” they wrote in a note to clients.
“We view conversational AI with context and privacy as key to monetization of the installed base of Apple devices over time with increased productivity, higher priced Apps, increased subscription and payments from partners.”
The analysts expect Apple’s overall Services revenue to increase by 14% year-over-year in fiscal 2024, driving the company’s overall margin higher.
“We view low double-digit growth as sustainable in fiscal 2024 to 2026,” they wrote.
Licensing, the App Store, and Subscriptions are seen as key revenue drivers.
Their analysis suggests Licensing and Subscriptions each drove 33% of fiscal 2024 Services revenue, up 10% from the prior year.
“For Licensing, revenues tied to Safari payments remain the main contributor (estimated at 70% of revenue in fiscal 2024); however, we note that there is some risk from litigation as Google's payments to Apple are under scrutiny,” they wrote. “We expect search Ad revenue to accelerate.”
For Subscriptions, the bank’s analysts see iCloud and AppleCare+ as the largest revenue contributors, projecting they will contribute 12% and 10% respectively of fiscal 2024 Services revenue, followed by Apple Music at 7%.
They reiterated their ‘Buy’ rating on Apple and a $230 price target, citing Services growth, gross margin upside and the impending refresh of iPhone’s installed base.
Shares of Apple traded hands at about $213 on Wednesday afternoon.