Investment Rating - The report initiates coverage with a "Buy" rating for the company [4] Core Views - The company is positioned as a leader in consumer electronics with significant advantages in integrated hardware and software, making it suitable for edge AI deployment [1][15] - The company has over 2.3 billion active devices globally, indicating a strong user base for edge AI applications [1][26] - Revenue growth has slowed post-FY22, but service revenue continues to show double-digit year-on-year growth [1][32] - AI capabilities are expected to enhance both software and hardware revenue streams, leading to increased service business margins and cash flow [1][41] Summary by Sections 1. Comprehensive Hardware and Software Coverage - The company has a strong competitive edge in edge AI due to its integrated hardware and software ecosystem, including proprietary processors and operating systems [15][17] - The user base is substantial, with a significant number of active iPhone users, which supports the potential for AI deployment [15][26] 2. AI Expected to Drive Software Revenue - AI is anticipated to create additional software revenue streams, particularly through subscription models for services like Apple Intelligence [2][42] - The company has a high proportion of paid users, with nearly half of its user base subscribing to various services, indicating room for growth [2][50] - The service business has a gross margin exceeding 70%, which is expected to support ongoing share buybacks and dividends [2][65] 3. AI Empowering Hardware and Self-Developed Components - AI capabilities are likely to shorten product replacement cycles and expand the range of devices offered, contributing to long-term hardware revenue growth [3][41] - The company is increasing its self-developed chip ratio, which may mitigate potential tariff risks and enhance profitability [3][41] 4. Profit Forecast, Valuation, and Investment Recommendations - The company is projected to achieve net profits of $98.53 billion, $116.97 billion, and $130.35 billion for FY25, FY26, and FY27, respectively, with growth rates of 5.1%, 18.7%, and 11.4% [4][7] - A target price of $281.99 is set based on a 35x PE ratio for FY26, reflecting the company's strong AI capabilities and innovative product cycles [4][7]