There are "spots of optimism" for Apple Inc (NASDAQ:AAPL) iPhone growth ahead of the iPhone 16 upgrade cycle, said analyst Dan Ives of Wedbush in his preview of the upcoming quarterly earnings report.
Signs of iPhone "stabilization" were seen in recent Asia supply chain checks, Ives said, after a better-than-expected March quarter and ahead of what he now believes will be "the last negative growth quarter for China with a growth turnaround beginning in the September quarter".
China is still the "linchpin of growth" for Apple, the analyst said, predicting growth will return once the iPhone 16 is launched in September and goes on sale.
Since Apple's developer's conference in early June, Ives believes he is seeing optimism "growing throughout the Asia supply chain that this iPhone 16 AI driven upgrade could represent a golden upgrade cycle for Cupertino", based on the idea that there is plenty of pent-up demand globally.
The analysts, who reiterated his 'outperform' rating and $275 price target versus the last close just above $226.
"We believe the Street is now starting to slowly recognize that with Apple Intelligence on the doorstep in essence Cupertino will be the gatekeepers of the consumer AI Revolution," he said.
Other technology stalwarts, possibly including Meta Platforms and Google, are "likely" to need to integrate their AI models/technology into Apple Intelligence in future, Ives said, "as Apple and its golden iOS ecosystem hold the only keys to the castle of 2.2 billion iOS devices worldwide and 1.5 billion iPhones".
This means the next six to 12 months will see developers build "hundreds" of generative AI-driven apps for the Apple Store, with its technology stack creating the "core building blocks of the consumer AI tidal wave we see coming", starting with iPhone 16 in mid-September.
The OpenAI partnership agreed as part of the Apple Intelligence platform "creates the highway" for developers to focus on the new iOS 18 operating system, which will in turn "create a myriad of monetization opportunities for Cook & Co. over the coming years that the Street is still not fully appreciating in our view", the analyst added.
Down the line, Wedbush estimates this could result in incremental high margin growth for Apple Services of $10 billion annually, what he calls "the start of new multi-pronged AI revenue stream" based on hardware and software.
Apple is due to report fiscal second-quarter earnings on August 1.