From outsider to leader: why Bernstein is betting against the market - on Apple's leap into AI

Apple could go from being a laggard in the artificial intelligence market to one of the leaders in the technology, Bernstein said. He resumed coverage on the iPhone maker's stock and immediately advised buying it. Apple could benefit most from AI running directly on devices, the analyst said. This goes against the majority of Wall Street voices who see the company as an outsider to the AI revolution. Some have been prompted to downgrade Apple's stock.

Bernstein analyst Mark Newman resumed coverage of Apple stock with an Outperform rating on the stock, which equates to a buy recommendation. He also set a target price of $290, up 22% from the closing price on Tuesday, September 16.

"Apple is the gateway to the AI revolution, and the company is in a great position to reap dividends from it," Newman wrote in an investor note cited by Barron's.

Newman drew attention to the possible benefits Apple could gain by implementing on-device AI - artificial intelligence that runs directly on a smartphone or computer rather than in the cloud. The company uses both on-premises models and secure cloud computing as part of its Apple Intelligence platform, the analyst explains. Similar technologies are being developed by other companies, including Microsoft and Intel, Barron's notes.

"We still consider Apple's greatest asset to be its 1 billion user base - it's highly profitable and incredibly loyal. This creates huge potential if AI is implemented correctly," Newman wrote.

He added that Apple users are highly brand loyal and less focused on AI features, giving the company extra time to catch up with competitors. Apple, according to the analyst, potentially has the most to gain from on-device AI - but it also carries the biggest risks if execution fails.

Since the beginning of the year, the company's securities have fallen by 4.9%, while the S&P 500 index, for example, has risen by 12%. Wall Street's main complaint is Apple's lagging behind in the development of AI software, Barron's writes. Although the company has already introduced features that help users automatically reply to messages and generate unique emoji with AI, the consensus view among analysts is that Apple Intelligence is not yet up to par with the industry leaders.

At the presentation of new products, including the iPhone 17, the company introduced the iOS 26 operating system and said that the new smartphones will get a powerful chip for AI computing, but did not say the main thing - when these features will appear. In particular, users have long been waiting for an update to the Siri voice assistant, which is now not scheduled until next year. Until then, investors will have to decide whether Apple's AI can generate enough interest among customers to get them to upgrade their devices - or at least not move on to competitors with more advanced AI features, Barron's writes.

Last week, after the presentation, Apple shares received two downgrades at once: from DA Davidson and from Phillip Securities. DA Davidson lowered the recommendation from "buy" to "hold", and precisely because of the company's lagging behind in the field of AI, writes CNBC. At the same time, the target price remained at $250. Phillip Securities downgraded Apple from Neutral to Reduce ("sell") with a target price of $200, citing duties, high capital expenditures and - also weak progress in the field of artificial intelligence, writes Investing.com.

"We are not questioning the utility of the products, but Apple has demonstrated weak innovation in its core product line since the iPhone," wrote DA Davidson analyst Gil Luria. - So we remain disappointed until the company can really bring innovation to its core lineup or create a new product category to accelerate growth."

Phillip Securities analyst Helena Wang said she too maintains a "cautious view" on the company, in part because Apple has "no meaningful AI innovation to offset continued product weakness and the Chinese market situation."

Following the downgrade by DA Davidson and Phillip Securities, Apple's consensus rating - a measure of the ratio of "buy," "hold" and "sell" recommendations - fell to 3.9 out of 5, the lowest since early 2020, according to data compiled by Bloomberg. Last week, only 55% of analysts advised buying the company's securities, an extremely low level for a company of this caliber. By comparison, Nvidia, Microsoft and Amazon have more than 90%, the agency wrote.

According to MarketWatch as of the evening of Sept. 16, of 49 analysts, 59% of them advise buying shares of the iPhone maker, 33% advise holding the stock in a portfolio and 8% advise selling.

This article was AI-translated and verified by a human editor