Apple Shares Are Back to Winning Ways as AI Optimism Builds

(Bloomberg) — After months of struggles, Apple Inc. is looking a lot more like the stock market leader it used to be.

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The iPhone maker’s shares are on pace for their best month since March 2023. They’ve gained almost 12% after a strong earnings report showed growth is returning and the company also announced the biggest stock buyback in US history, a sign of its financial might.

In addition, there is growing excitement about its artificial intelligence plans. After being down as much as 14% this year, the stock is close to erasing those losses. The stock rose 0.5% on Thursday, on track for its fourth straight positive session.

The latest leg of the rally came after a Bloomberg report that Apple is closing in on a deal with OpenAI to use ChatGPT features in the new iPhone operating system. That had greater resonance after OpenAI on Monday showed off a faster and cheaper version of the AI model that underpins ChatGPT, including a demonstration of new voice features.

The demo showed the potential for AI-infused digital assistants, and such features could juice revenue growth for Apple by compelling customers to buy new iPhones and pay for more services, according to Ken Mahoney, chief executive officer at Mahoney Asset Management. He’s more convinced than ever that “AI will result in Siri on steroids,” he said.

“A lot of the details of Apple’s AI strategy are still under wraps, but I think AI will produce a huge upgrade cycle, one of the biggest it has seen in some time,” said Mahoney.

An agreement with OpenAI is not yet official, and Apple also has held talks with Alphabet Inc. to build Google’s Gemini AI engine into the iPhone. Those talks are ongoing, according to Bloomberg News.

Google unveiled new AI features of its own this week, in a demonstration that was seen as a positive sign of its own technological capabilities. Investors suggested a partnership with either could be positive for Apple.

Read More: Google Introduces Generative AI in Search in Major Update

“It doesn’t need to build things from the ground up, or make a huge investment in AI just to bring something to market,” Mahoney said. “Other companies have already done that work, and they’re all going to want to be on the iPhone.”

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A key event for Apple will come at its Worldwide Developers Conference on June 10. The company is expected to show off its next major software updates for the iPhone and other devices, where its new AI strategy will be front and center, Bloomberg has reported.

Apple has been dogged this year by concerns about stagnating revenue growth amid sluggish sales of iPhones and weakness in China. Revenue fell 4% in Apple’s fiscal second quarter, the fifth contraction in the past six quarters. However, the Cupertino, California-based company projected that sales would increase by a percentage in the low single digits, raising hopes about future expansion.

Of course, there’s still a lot of uncertainty, and at 27 times estimated earnings, Apple remains above its long-term average multiple at a time of tepid growth.

“If Apple can’t recapture growth, then it is probably a bit expensive,” said Ryan Gorman, an independent analyst who was previously chief investment officer at Callesen Wealth Management.

“A deal with either OpenAI or Alphabet would show that Apple is taking AI seriously,” he added. AI is “a feature you have to have to remain relevant, but does it really drive profits and revenue going forward? That remains to be seen.”

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–With assistance from Sarah Zheng and Subrat Patnaik.

(Updates to market open.)

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