Feline Lim/Getty Images News
Apple’s (NASDAQ:AAPL) artificial intelligence initiatives are likely to lead to increased growth in its all important services segment, Bank of America said on Wednesday.
“Apple Intelligence will drive improved Services growth Apple’s recent announcement to integrate AI into its operating systems and give third party developers deep access to features including Siri, should drive significant innovation from developers,” analyst Wamsi Mohan wrote in an investor note.
“We view conversational AI with context and privacy as key to monetization of the installed base of Apple devices over time with increased productivity, higher priced Apps, increased subscription and payments from partners.” Mohan has a Buy rating and a $230 price target on Apple.
As such, Mohan expects services revenue to rise 14% year-over-year in fiscal 2024 to $31.5B. For fiscal 2025 and 2026, Mohan expects services revenue of $34.5B and $37.3B, respectively. For comparison purposes, Apple generated $24.86B in services revenue in fiscal 2023.
Delving a bit deeper, Apple will enable its own portfolio of apps with Apple Intelligence and offer deeper integration with Siri and apps on VisionOS, which Mohan views as a positive. The Tim Cook-led Apple should also see an increase in revenue as the installed base continues to grow and more users purchase more of Apple’s services, such as iCloud, Apple Care, TV+, Music and more.
At present, iCloud, Apple Care and Apple Music are the three biggest revenue drivers for services, at 12%, 10% and 7%, respectively.
Apple shares rose nearly 1% in premarket trading on Wednesday following an upgrade from Rosenblatt Securities.