In what was seen as a move to catch up with Alphabet’s Google and Microsoft-backed OpenAI, the iPad maker last month unveiled Apple Intelligence, luring customers to upgrade their devices to be able to use the new technology.

Apple stock rally

Apple’s share price, which have jumped nearly 20% this year, rose to $236.30, giving the company a market value of $3.62 trillion, the highest in the world.

“Apple Intelligence is a clear catalyst to boost iPhone and iPad shipments,” Morgan Stanley analysts said.

AI technology to iPhone boost

The new technology is compatible with only 8% of iPhone and iPad devices and Apple has 1.3 billion units of smartphones currently in use by customers, the analysts said. Th analyst added that the company could sell nearly 500 million iPhones over the next two years.

Global smartphone market recovery

Industry analysts expect Samsung and Apple to lead the charge in global smartphone market recovery this year given the buzz around GenAI-enabled smartphones.

About 45.2 million smartphones were sold globally by Apple in the three months ending June, up from 44.5 million a year earlier. But its market share fell to 15.8% from 16.6% in the same period, according to IDC data.

Apple share price target

Apple share price, which have jumped nearly 20% this year, rose to $236.30. This gave the company a market value of $3.62 trillion, the highest in the world.

Morgan Stanley, which previously expected Apple to sell between 230 million and 235 million iPhones annually over the next two years, raised its price target on the company’s shares to $273 from $216.

The stock has an average rating of “buy” with a median price target of $217. It has outperformed the S&P 500 index (.SPX), opens new tab this year, according to LSEG data.

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The Apple AI features to boost sales, included an overhaul of its voice assistant Siri, integration with OpenAI’s ChatGPT, a range of writing assistance tools and new emojis that can be customized. The company pitched the features as AI for the average person, though users will likely need to upgrade their iPhones to access the tools.

Apple stock climb a record high

The rally comes as a breather for the stock, that has underperformed versus the benchmark S&P 500 this year, as Apple grapples with weak sales for its premium consumer gadgets.

With Tuesday’s share price rise, Apple bested its previous record from Dec 14. The company’s developer conference came as a welcome sign for investors who have been watching to see how Apple will capitalize on the ongoing AI boom.

Analysts from Morgan Stanley said Apple’s AI features strongly position the company with “the most differentiated consumer digital agent.” Additionally, the analysts believe that the features will drive consumers to upgrade their iPhones, which should “accelerate device replacement cycles.”

Apple’s valuation

Apple stands to add $180 billion to its market valuation if the current stock price of $205 holds.

At $3.15 trillion, Apple’s market valuation is just $40 billion shy of Microsoft’s, the world’s most valuable company. Nvidia, the largest benefactor of a boom in AI applications and number three in terms of market valuation, is at $2.93 trillion.

AI can boost sales for Apple

As per the analysts Apple will still have to deliver when the AI features are first available in the fall, but they think the “building blocks are in place for a return to growth and more sustained outperformance.”

“Following a WWDC that delivered on the key details we were focused on heading into the event, we have even greater conviction that Apple is on the cusp of a multi-year product refresh that underpins our OW rating, $216 price target, and $270 bull case valuation,” the analysts wrote in a note Tuesday.

Bank of America analysts were also optimistic about Apple’s announcements, saying the features will lead to “an upgrade cycle for AI-enabled IntelliPhones.” The analysts maintained their buy rating on the stock due to the promise of a multiyear upgrade cycle, potential for gross margin upside and services growth.

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Currently, Apple is the world’s most highly valued company, with a market capitalization of $1.389 trillion. Evercore’s analyst Amit Daryanani is sure that the company can achieve a much higher valuation based on its steady performance in the past. Apple stocks reached a record closing level of $327.20 in February. And with a steady appreciation of about 12-15 percent, the company will surely reach the figure in 4 years.

Daryanani has listed four basic elements that will help Apple achieve that figure. A key element is Apple’s growing services and wearable businesses. The analyst expects growth of nearly $60 billion with the expansion of Airpods and Apple Watch. The services business additionally could grow to $100 billion in the next four years. As iPhone sales dip amid supply and demand uncertainties, and the coronavirus hitting the supply chain timelines, the services segment for Apple has seen strong year-over-year growth of 17 percent with a high revenue of $13.3 billion in the company’s March quarter results this year. The App Store, Apple Music, Video, cloud services, its App Store search ad business, AppleCare, Apple TV Plus, Apple Arcade, Apple News Plus and Apple Card all have shown record returns in the last quarter.

Luca Maestri, Apple’s CFO, confirmed that new services such as Apple TV Plus, Apple Arcade, Apple News Plus and Apple Card are attracting new users with the addition of new content and features and aiding the growth of the overall service.

Apple now has over 515 million paid subscriptions across the services on its platform, up 125 million from a year ago.

The March quarter results of the company showed wearables, Home and Accessories segment record revenue of $6.3 billion, up 23 percent year-over-year.

Apple Watch is finding fresh customers across the world, with over 75 percent of buyers being first time purchasers, according to Maestri.

Another avenue of continued growth for the company, according to the renowned analyst, is higher profits and aggressively buying back stock. He predicts that the company could reach a value of $23 per share in autumn 2024, almost double of $12.72 per share estimate in the coming months. The company will see an EPS growth of 14 percent annually driven by “operational tailwinds and buyback support.”

“Apple would reduce its share count by about 1 billion shares in the forecast period, from 4.6 billion at the end of fiscal 2019 to 3.6 billion in fiscal 2024.

“At that share count, the market cap would hit $2 trillion if the stock price was just over $550,” Daryanani wrote.

“Apple continues to offer the best risk/reward in large-cap tech and long-term investors should use any weakness to add to positions,” Daryanani concluded. He rated the company at Outperform and lifted his target for the price to $360, from $345.

Apple’s services segment keeps a gross margin in the mid-60% range, compared to a 30 percent margin operation of the corporation as a whole. The service sector of Apple is growing at a faster rate than the hardware segment benefitting the corporate as a whole.

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