After regaining a market value of $3 trillion, can the "stock king" Apple continue to rise?

Zhitong App learned that as of the closing of the US stock market on Tuesday, in the optimistic sentiment of the market towards the recovery of the smartphone industry in 2024 and the Christmas holiday shopping season, Apple (AAPL.US), the world's most valuable company by market capitalization, saw its stock price rise slightly more than 2%, pushing Apple's total market value back above $3 trillion. This year, with the help of the global AI wave, US tech stocks have started an "epic rebound", and Apple's year-to-date increase has reached 50%, reaching the milestone market value of $3 trillion for the first time in June this year.

On Tuesday, Katy Huberty, Global Research Business Director at Morgan Stanley, one of Wall Street's major banks, stated that global investors are optimistic about edge AI, which runs artificial intelligence on end-user devices such as smartphones. Coupled with the upcoming recovery of the smartphone industry, these factors are currently "not reflected in Apple's stock price".

In an investor report, Huberty wrote, "Our technology research team believes that this theme has not significantly re-evaluated the sub-industry: the forward P/E ratio of smartphone-related stocks has only expanded from 22x at the end of the third quarter of 2023 to 24x in the fourth quarter of 2023. Our research team believes that this indicates that the current trend of Apple's stock price has not yet reflected the high expectations of the market for the recovery of smartphone shipments next year."

The consensus rating and target price compiled by Seeking Alpha show that Wall Street analysts have a "buy" consensus rating for Apple, with an average target price expectation of $196.48 and a highest target price of $240, indicating a slight potential for further increase.

Recent catalysts for Apple's stock price: Smartphone shipments are expected to regain growth curve next year + Hon Hai's performance boost

Preliminary data from Counterpoint Research, a well-known market research firm, shows that global monthly smartphone sales in October 2023 increased by 5% compared to the same period last year. This is the first month to record year-on-year growth since June 2021, breaking the trend of year-on-year decline for 27 consecutive months. Counterpoint Research points out that after the strong growth in October, the firm expects the market to achieve year-on-year growth in the fourth quarter of 2023, gradually moving towards recovery in the coming quarters.

Another market research firm, Canalys, recently released a report stating that after a significant decline of 12% in the global smartphone market in 2022, the market is showing initial signs of recovery around the fourth quarter of 2023. Although Canalys predicts that smartphone shipments will still decline by 5% in 2023, the downward trend has slowed down.

Canalys predicts that by the end of 2023, manufacturers are expected to have relatively healthy inventory levels and enough room to rebuild inventory to meet potential demand recovery. At the same time, Canalys also predicts that the global smartphone market will achieve moderate growth in a cautious manner in 2024. Canalys forecasts that smartphone shipments will grow by 4% in 2024, reaching 1.17 billion units. By 2027, it is expected to reach 1.25 billion units, achieving a compound annual growth rate of 2.6% from 2023 to 2027.

In addition, on Tuesday, Foxconn Technology, Apple's most important supplier, raised its performance expectations for the fourth quarter, citing increased sales during the holiday season. This news is considered one of the positive factors for Apple's stock price. Foxconn's sales in November increased by 18% to NT$650 billion (approximately $20.6 billion). This is the first year-on-year improvement in monthly data for this iPhone assembler since January of this year.

Foxconn (officially known as Hon Hai Precision Industry) stated that the second half of this year is the traditional peak season for the information and communication technology (ICT) industry, especially the sales performance in the first two months of the fourth quarter, which is slightly higher than previously expected. Therefore, the company stated that the performance outlook for the fourth quarter may be better than the initially announced "significant growth" performance guidance. The company stated that sales of smart consumer electronics products and components, as well as other products, have shown strong year-on-year growth, while sales of computing products, cloud computing, and network products have slightly declined compared to last year.

Foxconn is scheduled to announce its monthly performance report for the period ending in December 2023 on January 5, 2024.

One of the biggest motivations for consumers to upgrade their smartphones is the potential integration of AI large models.

With the development of AI technology, integrating more powerful AI large model capabilities into smartphones has become a mainstream trend in the tech industry. At the same time, the industry is actively addressing challenges related to this, such as the processing power of dedicated AI chips for massive data, energy efficiency, storage limitations, and privacy protection.

Currently, leading smartphone hardware manufacturers are developing their own large models and are incorporating offline-running edge large models into new generation models, creating so-called "AI large model smartphones." Compared to general AI large models that rely on cloud computing power, local large models on the edge can allow smartphone users to use products like ChatGPT more efficiently, conveniently, and securely. However, it is not easy to apply AI large models to smartphones. Not only do we need to consider the scale of model parameters, AI experience, and smartphone power consumption, but we also need to bear the cost of investment, which can reach hundreds of millions of yuan annually, from implementation to iteration. This is also a great test for the strength of manufacturers.

However, "AI large model smartphones" will bring significant value to users and smartphone manufacturers. Firstly, in the context of users' lack of motivation to upgrade their phones, AI large models will become an important bargaining chip for smartphone manufacturers in the market competition, and also the most important technical means to improve future sales expectations. Secondly, AI large models are expected to become personalized super assistants for each smartphone user, revolutionizing the user experience of smartphones and all consumer electronic application terminals.

In order to run AI large models on smartphones, some smartphone hardware manufacturers are researching and integrating dedicated AI processors. These proprietary AI chips are designed to efficiently process AI tasks, aiming to improve computational efficiency and energy consumption ratio. Manufacturers are also striving to combine cloud computing and edge computing, completing certain complex AI processing in the cloud, while handling real-time or sensitive tasks locally. They are also exploring techniques such as model pruning, quantization, and knowledge distillation to reduce the actual scale and computational requirements of large models, making them suitable for running on resource-constrained application devices.

It is reported that Qualcomm, the leader in smartphone chips, has been vigorously promoting the integration of generative AI functions into hardware devices on the local end, enabling local AI responses instead of spending more time connecting to the cloud. Media reports have also stated that Apple will incorporate its exclusive generative AI technology into iPhone and iPad applications as early as next year.