The upcoming launch of iPhone 16, Citibank believes $Apple (AAPL.US)$ will replace Nvidia, becoming the "first choice stock" for AI.

On August 29th, Citigroup analyst listed Apple's stock as the "preferred stock for AI" in 2025, surpassing Arista, the network equipment manufacturer of Nvidia.

Citigroup believes that the launch of the AI ecosystem can be divided into three stages: the first stage is chips/servers, the second stage is network/storage, and the third stage is devices. Citigroup classifies the first two stages as the "infrastructure stage", and believes that the AI industry has entered the infrastructure stage and is about to enter the final stage, the era of devices.

Although Nvidia currently dominates the AI infrastructure stage, the time for AI technology to shift to device functionality seems to have arrived. Citigroup believes that with the launch of "Apple Intelligence", Apple will shine in the era of AI devices.

With the imminent launch of iPhone 16, Citigroup predicts that AI will become a major highlight.

At present, Apple is about to launch the new iPhone 16, which will officially debut at the "It's Glowtime" product launch event on September 9th.

Citigroup analysts predict that how the hardware upgrade of iPhone 16 can better support AI functionality will be a highlight of the release event. Analysts wrote in research reports:

Apple's September new product releases typically focus on hardware upgrades, but we believe that the company will emphasize how the hardware updates of the iPhone 16 series will better support Apple Intelligence functionality, which is expected to be officially launched later this autumn.

Apple Intelligence integrates AI language models into a range of Apple devices such as iPhone, iPad, and Mac, enabling users to write documents, proofread content, and generate images. According to industry insider Mark Gurman, Apple has started training retail employees on Apple Intelligence and plans to make it a key selling point for the iPhone 16 series.

Not only for the iPhone 16, Citigroup believes that AI functionality will be further emphasized in the upgrade of the iPhone 17 next year. The institution predicts that the shipments of the iPhone 16/iPhone 17 in 2024 and 2025 will be 85 million and 92 million units, with total shipments of 228 million and 241 million units respectively.

Citigroup analysts wrote:

Before AI phones become popular in the mass consumer market, consumers will need some time to test all these new features and truly see how they improve their daily lives. We believe that Apple is most capable of achieving this goal because it is a leader in the high-end smartphone market and can seamlessly integrate software and hardware.

Citigroup analysts state that since 2016, during the June earnings report season to the September new product release event, Apple's stock performance has averaged 5%-6% higher than the large cap. The institution rates Apple's stock as a buy with a target price of $255.

The AI phone market has tremendous potential. IDC predicts that by 2028, over 70% of smartphones will have generative AI capabilities.

According to Citigroup, the AI smartphone market has tremendous potential. Its analysts quoted IDC data in research reports, stating that the compound annual growth rate of AI smartphones in the next five years will reach 78.4%, far exceeding the market average.

In July of this year, IDC raised its forecast for the shipment volume of generative AI smartphones, expecting it to reach 0.234 billion units in 2024, higher than the previous forecast of 0.17 billion units in February. This will account for nearly 20% of the total smartphone shipments, far higher than the 51 million units and 4% market share in 2023.

IDC also predicts that the compound annual growth rate (CAGR) of generative AI smartphones from 2023 to 2028 will reach 78.4%, while the overall annual growth rate of the smartphonr market is only 2.3%. This means that by 2028, over 70% of smartphones will have generative AI capabilities.

The next generation of AI smartphones, as defined by IDC, refers to systems-level chips (SoC) that can efficiently run local generative AI models, equipped with neural processing units (NPU) capable of at least 30 trillion operations per second (TOPS).

Citigroup states that currently, Apple's A17 Pro (used for iPhone 15 Pro), as well as MediaTek's Dimensity 9300 and Qualcomm's Snapdragon 8 Gen 3, all meet this criteria.

Editor/Somer