Gene Munster: Apple will experience its strongest product cycle ever over the next two years, driven by Apple Intelligence

Apple Intelligence — the personal intelligence system for iPhone, iPad, and Mac — combines the power of generative models with personal context to deliver intelligence that’s useful and relevant to the user.

In its fiscal Q324, Apple reported another solid quarter, with sales growing by 5% year-over-year, marking an improvement from the 4% decline in March 2024. The September guidance suggests that growth will remain steady, but, longtime Apple analyst Gene Munster writes, “more importantly, I continue to believe that the company will experience its strongest product cycle ever over the next two years, driven by Apple Intelligence that will lead upside to earnings.”

Gene Munster for Deepwater Asset Management:
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Overall, I estimate that about 80% of the company’s 2.2 billion-plus active devices will need to be upgraded to access generative AI features.

Now that September guidance is in place, investors can increasingly shift their focus to CY25 and CY26 growth expectations, which should see further acceleration in revenue growth driven by the upcoming supercycle. The Street expects FY24 growth to be 1.5%, FY25 to be 7.4%, and FY26 to be 6.1%. However, I believe growth in FY25 will be closer to 9%, and FY26 will be closer to 8%…

[I]t’s clear that Apple is trading its distribution network of approximately 1.9 billion monthly active users for access to OpenAI’s models and the corresponding Azure infrastructure. This is a great trade for Apple because it allows them to immediately catch up in the generative AI feature race without spending hundreds of billions of dollars and 3-5 years to build it themselves. In the end, the partnership approach should prove to be a win for investors in the form of higher revenue growth (driven by Apple Intelligence features), which should lead to higher margins.

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MacDailyNews Take: Munster is on the right track. The pent-up demand for new Apple Intelligence-capable iPhones —- and, indeed, iPads and Macs, as well -— is being underestimated by most Wall Street analysts. Apple remains woefully undervalued.
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