Can Apple Break the iPhone's Growth Bottleneck with AI? New iPhone Release Brings Both Expectations and Risks

Can Apple Break the iPhone's Growth Bottleneck with AI? New iPhone Release Brings Both Expectations and RisksSeptember 6th: The new iPhone that Apple is set to release next week will play a crucial role in the company's history. At least until the iPhone 17 is released next year, its importance will be nearly unmatched

Can Apple Break the iPhone's Growth Bottleneck with AI? New iPhone Release Brings Both Expectations and Risks

September 6th: The new iPhone that Apple is set to release next week will play a crucial role in the company's history. At least until the iPhone 17 is released next year, its importance will be nearly unmatched. This reality is particularly salient for a tech giant with a market capitalization exceeding $3 trillion, with over half its revenue reliant on a single product line the iPhone. Though Apple has attempted to lessen its dependence on the iPhone in recent years through services, Apple Watch, and AirPods, the iPhone remains its most significant revenue source. Even in economically challenging years, iPhone annual sales consistently surpass 200 million units, with an average selling price near $1000, making its market influence undeniable.

According to data from S&P Global Market Intelligence, based on the 12 months ending June this year, the iPhone business has climbed to the 15th largest among S&P 500 companies, exceeding even businesses like Chevron, Ford, and General Motors. Achieving significant growth for such a massive business in the mature smartphone market is no easy feat. FactSet data reveals that iPhone revenue declined by 2% in the fiscal year ending last September, with expectations of a continued slight decrease this year.

Therefore, the market is placing high expectations on the new iPhone, especially as it will be the first to feature Apple's latest AI technology. Apple's stock price has risen by around 25% in the past six months, outperforming other major tech companies. While Wednesday's stock price dipped about 6% from its July all-time high, FactSet data shows that Apple's current forward price-to-earnings ratio is still close to 31, 18% higher than its five-year average and 48% above the S&P 500. This performance also carries inherent risks, particularly given the propensity for Apple's stock price to decline on the day of new iPhone releases.

This year, the market is watching closely to see whether Apple's AI technology can truly drive iPhone sales growth, a question that remains unanswered. Historically, strong iPhone sales cycles have coincided with significant hardware or design changes, such as increased screen sizes or the introduction of 5G capability. While Apple showcased its "Apple Intelligence" technology at the global developer conference in June, whether this technology will translate into actual sales momentum remains to be seen.

There are evident discrepancies in market expectations regarding the upcoming iPhone 16. Erik Woodring, an analyst at Morgan Stanley, points out, "Apple Intelligence is key to unlocking pent-up iPhone demand and accelerating the upgrade cycle." Conversely, David Vogt, an analyst at UBS, argues, "In the short term, AI-related features aren't enough to significantly boost demand."

Furthermore, Apple Intelligence features are slated for release in October, meaning the new iPhone launching this month will not have it pre-installed. Moreover, not all AI features will be available immediately, with the integration of ChatGPT with Siri anticipated to occur only by year-end. As a result, Wall Street's expectations for the iPhone's sales cycle are more fragmented.

According to consensus forecasts from VisibleAlpha, analysts anticipate a 4.5% increase in Apple's iPhone sales in fiscal 2025, followed by a projected 5.4% rise in fiscal 2026. Toni Sacconaghi, an analyst at Bernstein, remarks, "The market is gradually accepting the iPhone 16 bringing mid-to-high single-digit revenue growth, with expectations that the iPhone 17 will deliver a stronger performance."

Despite this, Apple isn't entirely reliant on AI to enhance iPhone sales. Three consecutive years of low growth indicate that many users are still using older devices, suggesting strong future upgrade potential. The recent stock price surge reflects investor enthusiasm for Apple's AI strategy. Compared to other large tech companies, Apple's hardware-driven business model provides it with a unique advantage, as it doesn't need to make massive capital expenditures on AI infrastructure for data centers (e.g., Nvidia chips).

Whether Apple can generate profits through AI without substantial investment remains to be seen and will be tested by the market.