Apple Services: AI to Drive Growth from 2024 to 2026, says Bank of America
Bank of America (BofA) analysts are optimistic about Apple's growth prospects, especially with the integration of Artificial Intelligence (AI) into its services. They believe that AI will play a significant role in sustaining low double-digit growth for Apple from fiscal 2024 to 2026.
AI Integration and Developer Innovation
Apple has recently announced plans to integrate AI into its operating systems and provide third-party developers with broad access to AI features, including Siri. This move is expected to spur significant innovation from developers and drive growth in Apple's Services segment.
Bank of America analysts highlight that “conversational AI” that understands context and ensures privacy will be crucial. It will help Apple monetize its existing base of device users over time, leading to increased productivity, higher-priced Apps, and more subscriptions and payments from partners.
Revenue Growth Projections
According to BofA's analysis, Apple's Services revenue is projected to grow by 14% year-over-year in fiscal 2024. This growth is expected to contribute to higher overall margins for the company.
Bank of America analysts believe that maintaining low double-digit growth is sustainable from 2024 to 2026.
Understanding Revenue Growth:
- Revenue: The money Apple makes from selling products and services.
- Year-over-year: Comparing revenues from one year to the next.
Key Growth Drivers: Licensing and Subscription Services
Licensing and Subscription Services are expected to be the primary drivers of Apple's near-term revenue growth.
- Licensing: Apple's licensing revenues, particularly those linked to Safari payments, are a significant contributor. However, there is some risk due to ongoing litigation scrutiny over Google’s payments to Apple.
- Subscription Services: These include Apple Music, Apple TV+, iCloud storage, and additional paid services that users subscribe to on a monthly or yearly basis.
For licensing, search ad revenues, specifically from Safari, are anticipated to accelerate, adding to Apple's growth.
Stock Rating and Target Price
Bank of America has reiterated a “Buy” rating on Apple’s stock (AAPL), with a price target of $230.
Conclusion
In summary, Apple's move to integrate AI and provide developers broader access are expected to drive sustainable growth in its Services segment over the next few years. Key areas of growth include Licensing and Subscription Services, contributing to a projected 14% increase in revenue in fiscal 2024 and steady growth thereafter.
By understanding these key points, even those less familiar with financial terms can see that Apple is anticipated to thrive through its innovative use of AI and expanded services, leading to continued financial success.
