Saturday, May 18, 2024

Apple, smartphone component suppliers, could see AI boosting China demand: Bernstein

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Apple (NASDAQ:AAPL) iPhones, Androids and suppliers of smartphone components are poised for growth in the second half of 2024 as inventory risks abate and artificial intelligence possibly provides a shot in the arm.

According to Bernstein’s China Smartphone Tracker, there is a continued risk of elevated smartphone inventory, but that risk is diminishing quickly, especially for Android models.

“We note that Apple guided for above seasonal growth for its June quarter, and stated that global channel inventories were at historical levels,” said Bernstein’s Mark Li and others in a note. “Inventory build for Android was more modest and MediaTek (OTCPK:MDTTF) & Qualcomm (NASDAQ:QCOM) both guiding a dip in June quarter suggested it will be digested in 2Q24.”

As the weaker smartphone market appears to have already hit the bottom and demand is stabilizing, Qualcomm (QCOM) is situated in a good position as the year progresses, according to Bernstein. It is rated Outperform with a price rating of $220.

Arm Holdings (ARM) also looks to gain from a resurgence in the smartphone market. However, Bernstein suspects its current valuation is too high.

Even with iPhone inventory still high, there are a series of upcoming catalysts for Apple.

“Apple is entering its seasonally strong trading period, numbers are now likely de-risked for the year, and the company has a series of forthcoming product announcements (WWDC in June; iPhone 16 in September; potentially new Airpods in 2H),” Bernstein notes. “While some investors continue to worry about China, we suspect that by the time Apple reports Q3 in August, all eyes will be on the iPhone 16.”

Chinese smartphone producer Huawei continues to eat into the market share of rivals as its first quarter shipments increased by 83%% year over year.

Still, could the integration of the AI wave into smartphones provide a tide that floats all boats in the market?

“Perhaps, as we’re not sure simply a few months of data is sufficient to make a conclusion, and also haven’t seen a proof that links the shift to high-end segments to AI either,” Bernstein notes. “Nonetheless, this is certainly encouraging. As smartphone is the biggest application for semiconductor industry, if AI can indeed reignite the growth, it will surely benefit MediaTek & Qualcomm, as well as the broader supply chain including TSMC (TSM).”

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