Apple AI Upgrade Spurs Davidson to Set $230 Target

Key Takeaway

• Apple introduces "Apple Intelligence" at WWDC, enhancing iPhone 15 Pro and other devices with AI features like summarization and text generation.
• Analyst Gil Luria upgrades Apple to a buy rating, raising the price target to $230 per share, citing potential for a significant iPhone upgrade cycle.
• Apple's AI strategy focuses on device-specific models prioritizing privacy and efficiency, contrasting with competitors' cloud-based approaches.

Apple Unveils AI Initiatives

Apple Inc. has announced its entry into the generative artificial intelligence (AI) race with the introduction of "Apple Intelligence" at its Worldwide Developers Conference (WWDC). This new AI suite is designed to enhance the functionality of Apple devices, including the iPhone 15 Pro and Pro Max, as well as certain iPad and Mac models. Analyst Gil Luria from D.A. Davidson upgraded Apple to a buy rating and raised the price target to $230 per share, suggesting a 19% upside from Monday’s close of $193.12. Luria believes this move could lead to a significant iPhone upgrade cycle, stating, "We believe yesterday’s presentation rhymes with one of Apple’s previous milestone moments."

Apple's AI features aim to make Siri a more "meaningful agent" by integrating summarization, enhanced search, and text generation capabilities. Luria noted, "Apple is uniquely positioned to offer these capabilities, and may be the only one capable of doing so any time soon." The company’s approach focuses on integrating AI into its existing ecosystem, leveraging its extensive consumer base and trusted brand.

Distinct AI Strategy

Apple's AI strategy, as explained by software chief Craig Federighi and AI chief John Giannandrea, differs from that of competitors like Microsoft and Google. Apple is focusing on smaller, device-specific AI models rather than large, cloud-based systems. Federighi emphasized, "We think AI’s role is not to replace our users but to empower them." This approach aims to balance performance with battery efficiency and privacy.

Apple's AI models are designed to run on its devices and chips, with cloud support from partners like OpenAI for more complex tasks. Giannandrea highlighted, "We think that the right approach to this is to have a series of different models and different sizes for different use cases." This method allows Apple to maintain user privacy by processing data locally whenever possible. Federighi added, "We’re not taking this teenager and telling him to go fly an airplane," underscoring the company's cautious approach to AI deployment.

Privacy and AI Integration

Privacy remains a cornerstone of Apple's AI strategy. The company has long marketed itself as a protector of user data, contrasting its business model with those of ad-driven companies. Giannandrea stated, "We’re not going to take that data and go send it to some cloud somewhere." Apple has developed its own servers, called Apple Private Cloud, to ensure that user data remains secure and private.

Apple's AI features include document summarization, real-time translation, and the ability to generate new emojis without internet connectivity. These features will be available in a beta version this fall. The company also plans to allow third-party inspections of its AI server software to verify its privacy claims. Federighi explained, "Even if a company maybe makes a promise and says, ‘Well, hey, look, we’re not going to do anything with the data.’ You have no way to verify that."

Street Views

• Gil Luria, D.A. Davidson (Bullish on Apple):

  "We believe yesterday’s presentation rhymes with one of Apple’s previous milestone moments — the transition of digital music from a standalone app with questionable regulatory standing (i.e. Napster) to an experience integrated into existing consumer applications (i.e. iTunes)."
  "Importantly, Apple is uniquely positioned to offer these capabilities, and may be the only one capable of doing so any time soon... Because Apple has not only the consumer’s information, but also their trust, it can deliver the above deeply integrated functionality in a way that standalone chat applications, PCs, and Android devices may not be able to fully replicate."