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Apple<\/a> is about to get a new secret weapon<\/a> that could lead to some juicy returns for investors: AI-focused phones. Bank of America<\/a> analysts call them \u201cIntelliPhones,\u201d and in a Wednesday note, they argued that these high-powered devices will be an entirely new breed compared to the current raft of smartphones.\u00a0<\/p>\n Senior equity research analyst Wamsi Mohan and his team described a future where phones will need far more computing power in order to handle the daily use of \u201cAI agents\u201d that will help with everything from booking travel and real-time translation to scheduling and tutoring. For Apple and its installed base of over 2.2 billion active smartphones, that means a massive opportunity to sell customers on the latest and greatest AI tech.<\/p>\n \u201cWe see the introduction of AI smartphones (IntelliPhones) as a once in a decade upgrade event,\u201d Mohan and his team wrote, forecasting \u201ca multi-year upgrade cycle similar to the step function improvement driven by the introduction of smartphones.\u201d<\/p>\n IntelliPhones are set to offer a new experience for consumers that smartphones won\u2019t be able to compete with, including augmented and virtual reality experiences, health monitoring, and more, according to BofA\u2019s analysts. \u201cAs AI technology evolves the gap between IntelliPhones and traditional smartphones is likely to widen further by offering even more sophisticated and personalized functions driving the desire to upgrade,\u201d they wrote.<\/p>\n Shares of Apple have risen just over 7% during the past 12 months, lagging compared to the S&P 500, and particularly, the soaring big tech sector<\/a>. But with the era of AI-enabled phones on the horizon, Bank of America analysts expect a turnaround. Mohan and his team reiterated their \u201cbuy\u201d rating and a $230 price target on shares of Apple Wednesday. It\u2019s an outlook that represents a potential 20% gain for Apple investors over the next 12 months, but that rise would also leave the Cupertino-based tech giant with a lofty valuation of 30 times its fiscal year 2025 earnings.<\/p>\n Still, Mohan and his team said that they believe that higher valuation \u201cis justified given a multi-year [iPhone] upgrade cycle, large cash balance and opportunity to diversify into new end markets, increasing mix and diversity of services.\u201d\u00a0<\/p>\n \u201cWe see IntelliPhones dominating edge AI, as compared to AI PCs, given their portability, features and cost,\u201d he added.<\/p>\n One of the keys to the success of IntelliPhones will be AI developers, according to Bank of America. Mohan and his team said they believe that developers will build AI agents that will run on Apple\u2019s phones, creating \u201ca new layer of monetization\u201d for the company.<\/p>\n The comments echo the AI optimism that CEO Tim Cook described in Apple\u2019s May 2 earnings call. \u201cWe believe in the transformative power and promise of AI, and we believe we have advantages that will differentiate us in this new era, including Apple\u2019s unique combination of seamless hardware, software, and services integration, groundbreaking Apple silicon with our industry-leading neural engines, and our unwavering focus on privacy, which underpins everything we create,\u201d he said.<\/p>\n CFRA Research analyst Angelo Zino also maintained his \u201cbuy\u201d rating on shares of Apple Tuesday, citing improved iPhone sales prospects in China due to the company\u2019s AI push. After iPhone sales in China wavered in 2022 and 2023 amid rising geopolitical tensions with the U.S. and increased domestic competition, Apple managed to turn things around<\/a> in April. iPhone sales jumped 52% from a year ago to 3.5 million units last month, and Zino believes Apple\u2019s AI ambitions are likely to kickstart more growth.\u00a0<\/p>\n \u201cAAPL\u2019s ambitions towards greater AI capabilities ahead of the iPhone 16 launch this fall should appeal to China consumers and also better position it at the high-end of the market,\u201d he wrote.<\/p>\n<\/div>\n\nSubscribe to the CFO Daily newsletter to keep up with the trends, issues, and executives shaping corporate finance. Sign up<\/a> for free.<\/div>\n