Will AI Boost Apple’s Bottom Line – or Bust It?

Apple (AAPL) finally showed up to the artificial intelligence (AI) party this week with the long-awaited debut of Apple Intelligence.

The company revealed its plans to integrate AI across its ecosystem during its Worldwide Developers Conference (WWDC) on Monday after unveiling a plethora of new features including interface customization, messaging upgrades, iPhone mirroring, and more.

About an hour and 38 minutes in, we also got confirmation of the rumored partnership between Apple and OpenAI, the developers of ChatGPT.

This Apple Intelligence reveal was a long time coming. The question now is, was it too little, too late?

Fashionably Late to the AI Party

Despite its pioneering position in the tech industry, Apple has trailed behind competitors like Microsoft (MSFT), Alphabet (GOOGL), and Amazon.com (AMZN) in AI development; these three tech leaders made up 67% of the $27 billion invested in AI ventures in 2023.

But Apple has a record of being late to the party – and that’s often worked to its advantage.

The iPhone came a decade after the first smartphone, and it absolutely rocked the landscape of handheld electronics.
Fitbit and Garmin (GRMN) had years of lead time before the Apple Watch was introduced with groundbreaking features.
AirPods brought seamless integration that prior wireless Bluetooth devices lacked.
Most recently, the Apple Vision Pro, far from the first virtual reality (VR) headset, topped all predecessors in optics and displays.

Sometimes it helps to let a competitor work out the kinks and learn from their mistakes before making a foray into the market.

Apple Intelligence a Game-Changer

The anticipation around Apple’s AI was justified.

Apple Intelligence, its proprietary AI system, aims to transform the Apple ecosystem, bringing new tools and features like writing enhancement, email sorting, phone call transcripts, image and emoji generation, photo editing, and a supercharged Siri.

Apple Intelligence’s access to personal data and its ability to interact with apps provide a never-before-seen level of AI integration, exposing one of the largest consumer bases to the advanced technology.

Apple’s ecosystem is one of the largest and most-loved in the world, boasting 2.2 billion active devices.

The company has long championed privacy and security in its products and services, which should give it a leg up in consumer trust and sentiment over AI safety concerns.

But its integration with ChatGPT is already posing a major concern for consumers.

Privacy in the Spotlight

Apple’s deep integration of AI, particularly with ChatGPT, has sparked worries about data access and privacy.

Recent reports have revealed that Apple is not paying OpenAI for its integration of ChatGPT, and is instead offering exposure to Apple’s vast user base.

Elon Musk was quick to fan the flames, expressing his discontent with Apple Intelligence on 𝕏 and even threatening to block Apple devices from his workplaces.

As we know, this man has the power to move markets – and shape elections. A campaign against Apple could spell trouble.

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However, during the keynote address, Apple briefly mentioned that all data will be kept on-device and only sent to larger models on external severs when absolutely necessary and only held for the request’s duration.

This falls under Apple’s new Private Cloud Compute system. ChatGPT will serve as a third-party tool that Apple users will have access to, as well as providing optional computing power. Apple is likely to add other third-party AI such as Google’s Gemini.

Sizing up the Competition

Apple Intelligence puts Apple right back at the center of the AI conversation. But not without follow-on effects – and emerging competition.

Apple Intelligence expanding access to ChatGPT is likely to benefit Microsoft, which supports OpenAI’s infrastructure.

The tech giant is one of OpenAI’s largest investors, and the two have an existing agreement allowing Microsoft’s Copilot AI to integrate ChatGPT technology while using its data centers to power ChatGPT.

Apple managed to top Microsoft as the most valuable company in the world Wednesday morning, though it returned back to second place by market close.

Then there’s Elon Musk, who is fueling speculation over an 𝕏 phone. Musk, a co-founder of OpenAI, could emerge as a potential competitor, along with xAI’s Grok program. And he suggested as much this week.

Apple Needs This

iPhone sales have underperformed in the past two years, with consumer interest steadily declining for the past five generations (iPhone 11 to 15):

Its shiny new Apple Vision Pro has so far been met with a muted reception on Main Street. The product hit shelves earlier this year, but since then, consumer interest has flatlined.

While iOS 18 is coming to the past six generations of iPhones, Apple Intelligence will only be available for iPhone 15 Pro and Pro Max devices, which were released just eight months ago.

Apple Intelligence is also coming to Mac and iPad devices, though the oldest compatible models date back to 2020, reducing the pressure on consumers to upgrade immediately.

We’ll be watching the data to understand if Apple’s new features being limited to the newest models will stimulate a strong upgrade cycle and boost sales across its ecosystem, particularly for the iPhone. Or if privacy concerns will hinder AI progress.