Apple will eclipse Nvidia as the top AI stock in 2025, Citi says

• Apple will surpass Nvidia as the top AI stock in 2025, Citi predicts.
• The AI trade is shifting to devices from infrastructure, benefiting Apple's upcoming iPhone 16 cycle, Citi said.

Apple will overtake Nvidia as the top AI stock in 2025, according to a Thursday note from Citi.

The bank said the AI trade is about to enter its third and final stage, which is devices, and which should be a key win for Apple and its upcoming iPhone 16 product cycle.

The AI trade is now in the infrastructure stage, highlighted by chips and servers as the first stage, and networking and storage as the second stage.

While Nvidia has dominated much of the infrastructure stage, it appears to be prime time for AI technologies to transition to on-device capabilities that will lead to large-scale consumer and enterprise adoption, according to the note.

Apple is setting the stage for this transition with its upcoming release of "Apple Intelligence," which brings AI capabilities to the iPhone lineup. Citi analyst Atif Malik said early indications suggest the features are strong enough to drive a big upgrade cycle for the next-generation iPhones.

"Developer feedback on iOS18 beta AI features including the recently launched new photo feature to remove unwanted objects points to AI as a compelling upgrade for iPhone refresh next year," Malik said.

Apple is expected to unveil its iPhone 16 lineup at a September 9 event called "It's Glowtime."

Along with on-device AI capabilities, the iPhone 16 family is expected to include A18 chips with an enhanced neural engine, improved cameras and microphones, and better battery life.

All of those hardware upgrades should prove essential in enabling a new generation of AI-capable software features.

"Apple's Sep event is generally all about hardware updates, but we believe the company will put a lot of focus on how the hardware updates for the iPhone 16 family can better support its Apple Intelligence features that is expected to roll out officially later in the fall," Malik explained.

While the iPhone 16 will kick off Apple's AI-era, it's really the 2025 release of the iPhone 17 that will drive a coming sales boom.

"As AI features are going to be released gradually over the next year and it takes time for developers to develop apps and for Apple to win customers recognition, we expect major refresh on iPhone 17 next year," Malik said.

Malik estimates Apple will sell 85 million iPhone 16 units in 2024 and 92 million iPhone 17 units in 2025. As a whole, Malik expects Apple to sell 228 million total iPhone units in 2024 and 241 million iPhone units in 2025.

"We view Apple as in the best position to make it possible given its leading position in the premium smartphone market and seamless integration of software and hardware," Malik said of consumers' adoption of AI technologies.

Malik rates Apple at a "Buy" with a $255 price target, representing potential upside of 13% from Wednesday's close.