Apple’s AI Push to Drive iPhone Sales

Apple Inc

Apple Inc.’s (NASDAQ:AAPL) recent developer conference went beyond integrating cutting-edge artificial intelligence into its software, including capabilities from ChatGPT. The event also aimed at driving more iPhone sales amidst challenging consumer spending and increasing competition in the tech sector.

With a customer base exceeding 1 billion, Apple is leveraging AI to rejuvenate interest in its flagship product and counteract a sales downturn. The new software requires at least an iPhone 15 Pro or Pro Max to operate, potentially sparking a significant wave of new purchases, according to several analysts. Some forecasted the most substantial upgrade cycle since the iPhone 12’s launch in 2020, which benefited from the introduction of 5G connectivity.

D.A. Davidson analyst Gil Luria remarked that the day’s presentations were the most compelling seen in recent years. Apple introduced “Apple Intelligence,” its generative AI, capable of creating text, images, and other content on demand. Demonstrations included AI-generated custom emojis, cartoons for messaging, and email edits for a more professional tone. Siri, Apple’s digital assistant, can now prompt users to seek help from ChatGPT.

However, skepticism remains among some analysts who doubt a rush of consumers to Apple stores solely for enhanced AI features. Forrester analyst Dipanjan Chatterjee suggested that while the new Siri-powered devices might stem some revenue loss, they are unlikely to attract a new following.

Tejas Dessai of Global X expressed that investors are looking for a more comprehensive and ambitious AI strategy from Apple. Following the announcement, Apple’s stock dipped by 2%.

AI Upgrade Requirements

Apple’s AI functionalities will not be available on all iPhones. To access these features, customers must upgrade to the iPhone 15 Pro or Pro Max, launched in September 2023. The AI capabilities rely on the advanced chips in these newer models, which process data privately on the user’s device.

Wedbush Securities analyst Dan Ives sees this as a substantial opportunity, noting that approximately 270 million iPhones have not been upgraded in the past four years. He predicts that over 15% of Apple’s installed base will upgrade to the anticipated iPhone 16, as many view Apple Intelligence as a long-awaited killer app.

The iPhone 16 release is expected this autumn. Gene Munster, managing partner at Deepwater Asset Management, praised Apple’s seamless integration with ChatGPT, emphasizing that Apple is simplifying the use of AI for consumers.

Despite a revenue dip for iPhones in Apple’s fiscal year ending September 2023, with sales dropping to $200.6 billion from $205.5 billion the previous year, AI remains a crucial element of Apple’s consumer appeal. Martin Yang of Oppenheimer & Co. noted that while consumers might be primarily attracted to larger displays or better cameras, the AI updates will draw early adopters and distinguish Apple through its ability to execute actions within and across apps.

“That action part will make Apple an immediate leader in consumer AI,” Yang concluded.

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