After voicing bullish thoughts prior to Apple’s last week’s earnings report, Lynx Equity Strategies analysts reiterated a positive outlook ahead of the company’s iPad event, scheduled for later today.
The firm anticipated that Mac revenue growth would signal user preference for Apple (NASDAQ:AAPL) Silicon in generative AI applications. In the March quarter, Mac revenue increased by 4% year-over-year, outperforming the consensus expectation of a 5% decline.
“We think the outperformance was in part due to adoption of the M3 Pro models by enterprise users running open-source LLMs on-device and off the cloud,” analysts wrote.
“Back last year, we previewed M3 Mac as potentially capable of on-device inferencing and fine-tuning mid-range class of LLMs. Management has been shy of explicitly connecting Mac sales to the Gen AI use-case,” they added.
Lynx analysts believe that during the iPad launch, Apple could begin outlining its AI strategy, offering an early glimpse before the Worldwide Developers Conference (WWDC) event.
If the new device features the 3nm-based M4 chip, it could mark the debut of Apple's first purpose-built hardware for delivering generative AI applications, with Mac and iPhone updates to follow.
This iPad model could be the initial platform to deliver and deploy multi-modal LLM-based applications. Notably, Lynx sees the Apple Pencil as central to the product, providing a means for users to input handwriting, sketches, and doodles into the tablet's generative AI engine.
“As AAPL has given no indication that it plans to meaningfully ramp capex, we think key to its AI strategy could be to run AI applications on-device and off-cloud as much as possible,” said the analysts.
This approach would be feasible only with Apple Silicon, thanks to the power-efficient CPU/GPU/NN/memory module architecture that Apple has refined over multiple generations, they explained.
“At the 3nm process node, we think Apple is likely to have the most advanced silicon capable of running Gen AI applications on-device and off-cloud, a huge advantage when it comes to reducing the power consumption at data centers,” Lynx continued.
“We think the consensus has not appreciated the potential of the new iPad models, as seen in Fy24 revenue growth modeled negative 8% and the next year only up 5%.”
Lynx’s team believes that Apple's revenue for the fiscal year (FY) 2025 could potentially match FY21 levels, representing an 11% increase from FY23 revenue, whereas consensus estimates predict a 3% decline.
They see room for growth beyond current expectations and reaffirm their price target of $220.