Apple is bucking the trend on AI - and that could help its stock

By Emily Bary

The tech giant's stock rises after a Rosenblatt upgrade

A Rosenblatt Securities analyst sees Apple Inc. deviating from the path on artificial intelligence in at least two ways - both of which he says could help the consumer-electronics stock.

Apple (AAPL) has framed its AI approach around privacy, and Rosenblatt's Barton Crockett thinks that could resonate with consumers. Rosenblatt recently conducted survey work that showed privacy was the No. 1 thing respondents cared about when thinking about smartphone-based AI.

Crockett flagged the "unique privacy focus of Apple Intelligence, to date unmatched by Android" as he upgraded Apple shares to buy from neutral on Wednesday.

"Our survey suggests that, today, consumers are not expecting to meaningfully accelerate smartphone purchases for AI," he wrote. "But we believe this can change as AI capabilities appear, and consumers learn that smartphone AI features are only available on the latest smartphones."

In that sort of landscape, Apple looks well positioned, Crockett said. He upped his price target to $260 from $196 in his latest report.

He also thinks Apple has taken a unique approach to its spending on AI.

Apple's "focus on specialized [large language models] and Apple silicon that appears to immunize Apple from cost pressures" that he predicts could be spurring "a close to $40 billion increase in [capital-expenditure] spending at hyperscalers Alphabet, Amazon, Meta and Microsoft this year versus last."

Conversely, Apple "is guiding to consistent capex suggestive of non-disruptive investment," he wrote.

"So Apple can have its cake (healthy margins) and eat it too, by using integration via Private Cloud Compute with third parties to offer the benefits of these companies' massive investments," Crockett continued.

He deems Apple shares worthy of a premium valuation in light of the company's "cost-disciplined leadership" and the new AI world.

Apple shares are up 2.5% in afternoon trading Wednesday.

-Emily Bary

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06-26-24 1516ET

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