The iPhone enters the AI era

Introduction

As the trading week begins, all eyes are set on Apple, which is hosting its much-anticipated iPhone event on Monday at 1 p.m. Eastern Time. The tech giant is expected to unveil at least four new iPhone models, alongside potential new color options. Morgan Stanley, in their recent analysis, speculates that the event will feature the launch of the iPhone 16 Family, new Apple Watch models (Series X and Ultra 3), and even new AirPods.

Pre-orders for the iPhone 16, 16 Plus, 16 Pro, and Pro Max are anticipated to commence on September 13, with shipping starting on September 20. However, the spotlight will be on Apple's AI platform. Analyst Dan Ives of Wedbush Securities believes that developers will create hundreds of generative AI-driven applications within the next 6 to 12 months, building toward a significant consumer AI wave, ignited by the new iPhone model.

Ives elaborates that although the AI features of the new iPhone might seem rudimentary in retrospect, they are crucial in establishing the presence of AI in consumers' and investors’ minds. He argues that Apple's previous innovation with the iPhone in 2007 provoked a shift in consumer behavior regarding mobile data access and usage, suggesting that the introduction of AI features, while not as groundbreaking, could be pivotal in making AI accessible to the average consumer.

Citigroup has identified Apple as its top artificial intelligence-related stock pick heading into 2025, even surpassing competitors like Nvidia and Arista Networks. Analysts noted positive initial feedback from early developers regarding the iOS 18's beta AI features, including a function for removing unwanted objects, which could incentivize consumers to upgrade their devices.

However, there is a pressing question for investors: will the event trigger a market rally or will it follow the historical trend of being a “sell the news” event? Analysts at Seeking Alpha have pointed out that Apple's valuation currently sits at a premium compared to historical averages, trading at a forward P/E ratio of 31.5 times, which is 26% higher than the long-term average.

In economic news, the week will also feature the August Consumer Price Index (CPI) release before the market opens on Wednesday. Both headline and core CPI are expected to rise by 0.2%, resulting in a headline CPI annual rate of 2.6%, the lowest since March 2021. Analysts from Wells Fargo caution that inflation is still on a bumpy path towards the Federal Reserve's 2% target but believe that several factors could lead to slight increases in prices across various sectors.

With the Federal Open Market Committee (FOMC) meeting upcoming on September 18, the analytics from the CPI release will certainly play a significant role in determining the possibility of interest rate cuts, which currently have a 70% chance according to Goldman Sachs.

In earnings news, excitement is buzzing among retail investors as GameStop prepares to report on Tuesday, alongside several other retail and technology companies such as Oracle, Dave & Busters, Adobe, Kroger, and Signet Jewelers throughout the week.

In a noteworthy development, Boeing has reportedly reached an agreement with union leaders, averting a significant strike that could have disrupted major operations. Meanwhile, Elon Musk's AI company, XAI, is engaging in a revenue-sharing deal with Tesla to provide AI technology and features.

Further, in the stock market, Steifel analysts recommend defensive and value stocks with potential for strong performance in a bull steepening treasury yield curve scenario. They highlight sectors such as pharmaceuticals, food and beverages, and healthcare as areas likely to outperform. Among those recommended are Costco, Altria, and Beckton Dickinson.

This week is poised for significant market events, with technological advancements and broader economic indicators shaping investor sentiment.

Keywords

iPhone, Apple, AI, generative AI, pre-orders, iOS 18, Consumer Price Index, interest rate cuts, GameStop, Boeing, Steifel analysts, defensive stocks.

FAQ

1. When is Apple's iPhone event?
Apple's iPhone event will take place on Monday, September 8, at 1 p.m. Eastern Time.

2. What new products are expected to be announced?
Apple is expected to unveil the iPhone 16 Family, new Apple Watch models (Series X and Ultra 3), and potentially new AirPods.

3. What is the significance of the AI features in the new iPhone?
Analysts believe these AI features will help establish AI in the consumer's mind and may lead to widespread adoption of AI applications.

4. What economic data is coming this week?
The August Consumer Price Index will be released on Wednesday, with expectations for both headline and core CPI to rise by 0.2%.

5. What are Steifel analysts recommending for investors?
They suggest focusing on defensive and value stocks, particularly in sectors like pharmaceuticals and food and beverages.