Semiconductor stocks have been among the biggest winners from the generative AI boom, as tech companies scramble to secure as much computing power as possible to train and deploy their AI models. For context, GPU leader Nvidia stock (NASDAQ: NVDA) has surged around 170% since early 2024, while Broadcom stock (NASDAQ: AVGO), which provides custom AI chips, has climbed 110%. However, concerns are emerging that demand could slow down as more efficient AI models like China’s DeepSeek gain traction, potentially reducing the frantic “fear-of-missing-out” phase in AI chip purchases. See How DeepSeek’s AI Model Impacts Nvidia Stock. We believe Apple stock (NASDAQ: AAPL) is well-positioned to benefit in the next phase of AI growth. The company initiated its AI push with the launch of Apple Intelligence tools for iPhones, iPads, and Macs in late 2024. With a vast user base, strong semiconductor design capabilities, and the ability to deliver secure, personalized AI with minimal reliance on costly cloud computing, Apple stands to gain significantly. Separately, will they be positive or negative? See What Tariffs Mean For Metal Stocks.
AI Drives Upgrade Cycles
Despite being a late entrant, Apple’s new Apple Intelligence suite—featuring an upgraded Siri, writing assistance, calculator improvements, and image generation—has impressed with its implementation. This contrasts with many major tech companies that are still searching for solid use cases or business models for generative AI. While primarily a software update, Apple Intelligence is only available on iPhone 16 and 16 Pro models, with last year’s iPhone 15 Pro being the only exception. This limited compatibility encourages users of older iPhones to upgrade. While the software launched in late 2024, iPhone sales have remained relatively flat, with revenue declining 1% year-over-year to $69.2 billion in the holiday quarter. However, an uptick in sales could be on the horizon. Apple is taking a staggered approach, gradually introducing features with each update. Many customers might be waiting for all AI capabilities to roll out before upgrading. Additionally, Apple Intelligence is currently available on less than 20% of the total iPhone user base, leaving significant room for growth. As AI expands to more devices, it could reinvigorate Apple’s iPhone and iPad sales, which have seen minimal growth in recent years. Separately, if you want upside with a smoother ride than an individual stock, consider the High-Quality portfolio, which has outperformed the S&P, and clocked >91% returns since inception.
Services Growth
Apple’s services division generated nearly $100 billion in revenue over the past year. In Q1 FY 2025 alone, services sales grew 14% year-over-year to approximately $26 billion, reaching an all-time high. This segment remains Apple’s fastest-growing division, driven by robust app sales and over 1 billion paid subscriptions. AI-powered tools could further accelerate growth in multiple ways. Apple could introduce premium features and new subscription offerings as it enhances its applications with AI capabilities. Additionally, increased storage needs for on-device AI processing could open new monetization opportunities. With over 2.3 billion active devices, even a modestly priced AI subscription could create a substantial revenue stream. See our breakdown of Apple’s services business revenues. Unlike other major tech firms investing tens of billions in AI-related capital expenditures, Apple’s on-device AI processing strategy means customers, rather than Apple itself, will bear the costs of higher compute power. See Why Did AVGO Stock Plunge 17%?
The DeepSeek Breakthrough Benefits Apple
China’s DeepSeek AI breakthrough has disrupted the AI semiconductor industry, impacting stocks like Nvidia. DeepSeek emphasizes software-driven optimization over reliance on powerful hardware, significantly reducing the cost of AI model training. Reports indicate that DeepSeek trained its V3 model for just $5.5 million—far less than the hundreds of millions OpenAI is estimated to have spent. This increased efficiency could weaken demand for high-end GPUs as AI companies embrace DeepSeek’s open-source methodology. While this presents challenges for semiconductor firms like Nvidia, it could work in Apple’s favor. DeepSeek has created smaller, more efficient AI models that operate effectively on basic hardware such as PCs and smartphones, sometimes outperforming larger models on key benchmarks. If AI development trends toward lightweight, localized models, Apple could be a major beneficiary due to its dominance in personal computing. Apple’s M Series processors, renowned for their power efficiency and performance, are well-suited for handling such workloads. As an aside, see What’s Next For Amazon Stock After A Bleak Outlook?
AAPL stock’s performance over the past four years has been inconsistent, with returns fluctuating more than those of the S&P 500. The stock delivered returns of 35% in 2021, -26% in 2022, 49% in 2023, and 31% in 2024. The Trefis High-Quality Portfolio, consisting of 30 stocks, has shown less volatility while outperforming the S&P 500 over the same period. Why? HQ Portfolio stocks have historically provided stronger returns with lower risk compared to the benchmark index, avoiding the extreme swings seen in individual stocks. See HQ Portfolio performance metrics. Given today’s uncertain macroeconomic environment, including interest rate concerns and geopolitical conflicts, could AAPL see another downturn like in 2022—or will it surge once again?
We maintain a neutral stance on AAPL stock, with a price estimate of $228—roughly in line with its current market value. While Apple is a key AI beneficiary, its stock trades at a relatively high 31x forward earnings, despite revenue growth projections of just mid-single digits over the next two years. Meanwhile, we remain bearish on NVDA stock, with a $93 price estimate—approximately 30% below its current trading price.
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