Apple (AAPL 0.05%) unveiled its highly anticipated next generation of iPhones earlier this week at its iPhone 16 launch event. While Apple enthusiasts no doubt will clamor for the latest iteration of the smartphone, the key question on investors’ minds is whether the upgrades will be enough to spark a hardware upgrade cycle that can power the stock.
While the new iPhone comes with some great new features, let’s look at why a significant upgrade cycle may not be in the cards.
Apple Intelligence and hardware upgrades
The key feature Apple hopes will drive consumers to its next-generation iPhone is its integration of Apple Intelligence. Apple Intelligence is the suite of artificial intelligence (AI) tools to help improve the user experience.
Apple Intelligence will help users in several key ways: expression, prioritization, memories, and an improved Siri. On the expression side, it will help users perform tasks such as rewriting, proofreading, and summarizing text in its own apps and third-party apps. It can also provide summarized notifications across apps and surface only priority emails and text messages for users of its new Reduce Interruptions feature.
For memories, users will be able to search for photos using natural language; they will also be able to create videos just by typing in a description. Within photos, users will also be able to remove distracting background objects using the new Cleanup tool. Meanwhile, Siri will now have better language understanding abilities and will be able to answer questions about a device’s settings and features.
Also on the AI front, Apple announced that it will add a new Visual Intelligence feature later this year. This new feature will let users use the camera in their iPhones to learn about objects around them. It is similar to the feature Alphabet previously introduced with Google Lens.
In addition to its new AI features, Apple introduced several other improvements to the iPhone. This includes a faster processor with its new A18 chip and a larger battery, both of which will help with battery life. The company also introduced a new camera control feature that will allow users to more quickly launch the camera and control it from a side button. Its new camera system will have a telephoto lens and well as an ultra-wide lens that will also allow for macro photography.
Image source: Getty Images.
Can the iPhone 16 help Apple stock skyrocket?
With no price increases from its earlier-generation iPhones, Apple will have to rely on increased iPhone demand to help power its revenue. The company is hoping its new AI-powered iPhone will garner a lot of interest and spark a hardware upgrade cycle.
However, there are signs that the average consumer just isn’t that interested in using AI features in their everyday lives. A recent CNET survey revealed users were much more concerned about battery life (61%), camera features (38%), and storage (46%) as reasons to upgrade their smartphones than AI features (18%). The survey also found that more than a quarter of users did not think AI features would be helpful, and half were unwilling to pay extra for AI features.
For those looking for AI to power a hardware refresh cycle for the iPhone, that’s not the best news. However, it does show that Apple was smart to add improved battery life and camera features, not solely focusing on AI.
The company isn’t exactly facing the toughest comparisons. iPhone revenue declined in the past two quarters. It rose just 3% during its year-ago September-ended quarter and 6% in its prior December-ended quarter. I think the new features combined with relatively easy comps should help drive sales higher, but perhaps just not very significantly.
With Apple trading at a forward price-to-earnings (P/E) ratio of nearly 30 based on next fiscal year’s analyst estimates, the stock appears to be baking in some stronger revenue growth than the company has currently been generating, which is less than 1% through the first nine months of its current fiscal year.
AAPL PE Ratio (Forward 1y) data by YCharts
I don’t think the launch of the iPhone 16 is enough to help Apple’s stock skyrocket. I would continue to hold the stock at current levels, but I would not be an Apple buyer with new money.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Geoffrey Seiler has positions in Alphabet. The Motley Fool has positions in and recommends Alphabet and Apple. The Motley Fool has a disclosure policy.
