Apple could reap big gains from on-device AI, says Bernstein analyst
News Summary
Bernstein analyst Mark Newman initiated coverage on Apple Inc. with an Outperform rating and a $290 price target, citing the company's unique position at the intersection of hardware and software as a potential key beneficiary of on-device artificial intelligence (AI). Despite its loyal user base of over 1 billion, Apple's stock has underperformed in 2025, declining 4.5% year-to-date while the S&P 500 gained 12%. Investors are concerned about the slow rollout and lack of significant enthusiasm for current Apple Intelligence features, such as smart message replies, compared to more advanced rival offerings. Newman believes Apple's vast installed base provides strategic resilience, giving the company time to refine its AI offerings. He suggests that if Apple successfully leverages its ecosystem to deploy effective on-device AI, it could regain market momentum and secure a leading role in the evolving AI market. The highly anticipated enhanced Siri chatbot is expected to debut next year.
Background
In recent years, artificial intelligence technology has seen rapid advancements, particularly in cloud-based AI. However, on-device AI, which operates locally on devices, has gained significant attention due to its faster responses, enhanced privacy, and potential to drive new hardware demand. Apple introduced its "Apple Intelligence" platform in 2024, aiming to integrate AI capabilities across its product ecosystem by combining private cloud compute with on-device AI. As of 2025, Apple has been perceived as lagging behind competitors in the rollout and innovation of AI features, contributing to its stock's underperformance this year and raising investor concerns. The market widely anticipates Apple to leverage its vast user base and strong ecosystem to catch up in the on-device AI space.
In-Depth AI Insights
What deeper strategic risks are truly embedded in Apple's "delicate position" regarding on-device AI? - Beyond apparent technical execution risks, there's a profound challenge to user mindshare and ecosystem stickiness. If Apple's AI experience fails to surpass competitors' "AI PCs" or smartphones, it could not only dampen upgrade intentions but also erode its premium brand image and user loyalty. - Crucially, as a vertically integrated hardware and software giant, Apple's AI integration complexity far exceeds that of a pure software or hardware company. Any execution misstep could lead to a fragmented user experience, thereby weakening the ecosystem moat it relies upon. How can Apple's vast and "sticky" user base be strategically leveraged in the AI competition, and what are the potential long-term implications of such leverage? - This stickiness is not mere brand loyalty but an ecosystem lock-in effect. It grants Apple invaluable "trial-and-error" time and "iteration" space, enabling it to avoid the pressure faced by pure competitors to rush out imperfect, aggressive features. - Long-term, if Apple successfully uses this buffer period to seamlessly integrate AI into its existing services, it will further entrench user dependence on its ecosystem, increasing switching costs, thereby solidifying its market pricing power and profit margins in the AI era. Does Bernstein's optimistic assessment of Apple also reflect confidence in the long-term innovation capabilities of U.S. tech giants amidst the current Trump administration's tech competition backdrop? - Yes, this is partly reflected. In an era of escalating global competition among major powers, particularly in cutting-edge technologies like AI, the U.S. government typically encourages domestic tech giants to maintain leadership through policy guidance or implicit support. - Bernstein's assessment likely stems from an inherent confidence in Apple's R&D investment, talent pool, and its ability to overcome technical challenges and achieve commercial breakthroughs within the U.S. innovation ecosystem. This extends beyond a judgment of the company itself to include macroeconomic considerations.