Why Apple's stock is now Citi's top AI pick - above Nvidia

By Emily Bary

Apple is in the best position to bring AI to the masses through enhanced smartphones, according to Citi

Nvidia Corp. more than doubled revenue in its most recent quarter. Apple Inc., meanwhile, saw sales grow by only 5%.

But Apple's stock (AAPL) is now Citi analyst Atik Malik's preferred way to play the artificial-intelligence trend. "Move over" Nvidia (NVDA) and Arista Networks Inc. (ANET), he said in a Thursday note to clients.

Malik likes Apple shares ahead of the company's next iPhone launch. While owners of Apple's iPhone 15 Pro phones will be able to access the best new AI software features, Apple will require that owners of any other existing iPhone upgrade in order to access the Apple Intelligence software. As such, the launch event on Sept. 9 is expected to put more focus on what AI can do for smartphones.

Shares of Apple are up 1.5% in premarket action Thursday.

See also: As Nvidia's stock falls on earnings, these analysts say to buy the dip

"Apple's [September] event is generally all about hardware updates, but we believe the company will put a lot of focus on how the hardware updates for the iPhone 16 family can better support its Apple Intelligence features that are expected to roll out officially later in the fall," Malik wrote.

More: Apple's AI-driven 'super cycle' set to begin as iPhone 16 event date is announced

Phones capable of running generative-AI functions could pick up 20% share of the smartphone market this year, Malik noted, but "it's still early in the adoption cycle in terms of how AI phones can actually help with consumers' daily life."

He anticipates that the phones will prove useful for work productivity, email summaries and health monitoring, among other applications.

"It will take time for consumers to test all these new capabilities and really see the impact of how it can improve daily life, before the adoption of AI phones go into the mass consumer market, and we view Apple as in the best position to make it possible given its leading position in the premium smartphone market and seamless integration of software and hardware," he wrote.

Malik is already looking ahead to next year, as he noted that there could be a "major refresh on iPhone 17" then, once developers have a more robust array of apps supporting AI.

Apple is now Malik's "top AI pick" in a shift meant to "align with our AI investing framework." He sees three stages of the AI rollout, with the first two being infrastructure plays. First there's chips and servers, then networking and storage. Finally, there are devices that bring "consumer-ready smaller AI models" to the masses in a regulatory-compliant way.

He rates Apple shares a buy with a $255 target price.

Don't miss: Apple stands out by this analysis - but watch Amazon and Nvidia as well

-Emily Bary

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08-29-24 0819ET

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