apple(NASDAQ:AAPL) Launching the first-ever iPhone in 2007, it revolutionized the smartphone market and changed the fortunes of established smartphone companies, including: nokia and blackberries (At the time it was known as Research in Motion).
It’s worth noting that in 2007, Apple sold only 1.4 million iPhones. For comparison, the popular Nokia 3310 sold 7.4 million units in the fourth quarter of that year alone. Nokia’s device was seven years old at the time and was just a feature phone. But Apple changed the game by combining internet, entertainment, and a touchscreen into the same device.
Apple has come a long way since then. According to IDC, it became the top selling smartphone in 2023. The company shipped 234.6 million iPhones last year, controlling 20.1% of the market. This was slightly ahead of Samsung, which had a 19.4% market share in the smartphone market last year. The two companies have been in a fierce battle for smartphone supremacy for years, but are now turning their attention to artificial intelligence (AI) to explore the next growth frontier in the space.
Samsung has so far led Apple in the generative AI smartphone market. However, Apple began its transition to AI in June this year with the introduction of Apple Intelligence, a suite of generative AI capabilities. Let’s take a closer look at Apple Intelligence and see why the company can use this feature to drive growth.
Apple says its generative AI platform unlocks “new ways for users to improve their writing and communicate more effectively.” From users proofreading, rewriting, and summarizing text to more intelligently recording audio to Siri, transcribing, and summarizing, there are many tools that Apple Intelligence users have access to.
Apple hasn’t announced whether it will charge for its generative AI features. But the company is likely heading in that direction. That’s because Apple is more than just a hardware company. The technology giant has a strong services business, which generated $71 billion in revenue in the first nine months of fiscal 2024, accounting for nearly a quarter of its revenue.
The important thing here is that the margins in the services business are much higher than in Apple’s product business. Apple’s services business had a gross margin of 74% in the third quarter, compared to a 35% gross margin for its products division. Services businesses currently offer a wide range of services including cloud storage, music, television, games, fitness, and news.
The company offers these services through a subscription model under the Apple One umbrella. Individual subscriptions start at just under $20 per month, and family plans cost just under $26 per month. The top plan can be purchased for just under $38 per month.
The addition of Apple Intelligence to this plan will allow the company to further increase revenue from its services business, with an annual revenue run rate approaching $100 billion (services revenue generated in the first nine months of fiscal 2024). ).
Wall Street analysts and research firms believe that Apple may charge a subscription fee for access to advanced Apple Intelligence features. For example, Counterpoint Research estimates that the company could charge between $10 and $20 per month if it included Apple Intelligence features in its Apple One plans. Meanwhile, Bloomberg’s Mark Garman predicts that Apple will initially offer generative AI capabilities for free, but will likely charge for advanced features.
note that microsoft uses the Copilot AI assistant to do something similar. The standard version of Copilot is offered for free, while paid plans start at $20 per month and go up to $200 per month depending on the number of features the user chooses. Customers pay for Microsoft Copilot, and the company has already built a strong base of paying customers for the service.
In February, Apple CEO Tim Cook announced that the company’s installed base of active devices had reached 2.2 billion. That’s a huge number that could pave the way for quick monetization as Apple Intelligence plans to bring AI capabilities to MacBooks, iPads, and iPhones.
Of course, Apple Intelligence isn’t compatible with all these devices. This feature is currently only supported on the iPhone 15 Pro, iPhone 15 Pro Max, iPhone 16 lineup, and iPads and Macs running M1 chips or later. Wedbush Securities analyst Dan Ives estimates that 1.5 billion active devices in the company’s massive installed base are iPhones. About 20% of these iPhones haven’t been upgraded in four years, meaning about 300 million users could end up buying Apple’s generated AI-enabled smartphones.
On the other hand, increasing demand for AI-enabled personal computers (PCs) may prompt customers to purchase new MacBooks that support AI features. In other words, AI is likely to increase Apple’s product sales. If Apple decides to charge a subscription fee for its AI capabilities, it will eventually narrow it down to services.
Assuming Apple decides to charge even $10 per month for its AI services and gains 300 million paying customers, it could generate $3 billion per month from monetizing Apple Intelligence. However, this number could rise even higher if subscription fees increase or if a larger portion of the installed base starts using the product.
Apple’s services business is approaching $100 billion in annual revenue and could be hit hard if predictions about charging for Apple Intelligence features come true. Considering Apple’s hardware sales are likely to increase, it’s no surprise that the tech giant’s pace of growth accelerates.
Before buying Apple stock, consider the following:
of Motley Fool Stock Advisor Our analyst team has identified what they believe Best 10 stocks What investors can buy right now…and Apple wasn’t among them. These 10 stocks have the potential to generate impressive returns over the next few years.
when to think about it Nvidia This list was created on April 15, 2005…if you invested $1,000 at the time of recommendation. you have $855,238!*
stock advisor provides investors with an easy-to-understand blueprint for success, including guidance on portfolio construction, regular updates from analysts, and two new stocks each month. ofstock advisorFor the service more than 4 times The resurgence of the S&P 500 since 2002*.
See 10 stocks »
*Stock Advisor will return as of October 21, 2024
Harsh Chauhan has no position in any stocks mentioned. The Motley Fool has positions in and recommends Apple and Microsoft. The Motley Fool recommends BlackBerry and recommends the following options: A long January 2026 $395 call on Microsoft and a short January 2026 $405 call on Microsoft. The Motley Fool has a disclosure policy.
The original article “Prediction: This will be Apple’s next big move” was published by The Motley Fool
