Apple's AI moment is here.
After seeing its value stagnate compared with rivals that were quicker to incorporate generative artificial intelligence into their core products, the iPhone maker on Monday will hold what might be its most momentous software event in a decade.
At its Worldwide Developers Conference, which begins at 1 p.m. ET and will run throughout the week, the company is expected to announce a raft of new AI features. Those include message-writing assistance, photo editing and text summarization, as well as a boost in capabilities for voice assistant Siri. Apple is also expected to strike one or more partnerships for more advanced AI capabilities, such as with OpenAI's ChatGPT, according to people familiar with the matter.
For Apple, the past year has been characterized by challenges including falling sales in China and regulatory scrutiny from a U.S. antitrust lawsuit and a new European law, both of which take aim at how it manages third-party software.
Investors are impatient and hope Monday's announcements will propel a new rally.
"It's important for them to start showing progress," said Charles Rinehart, chief investment officer at Johnson Investment Counsel, an Apple investor.
Behind the scenes, Apple has been trying over the past year to find ways of integrating generative AI into its products, The Wall Street Journal recently reported.
Apple's shares have risen about 8% in the past year. Microsoft has surged roughly 26%, and it supplanted Apple as the world's most valuable company by market capitalization in January. Google is up 41% over the past year.
Microsoft and Google have rapidly incorporated generative AI across their products. Nvidia, the main chip provider in the AI boom, reached a $3 trillion valuation on Wednesday and briefly exceeded Apple's market capitalization.
Meanwhile, Apple's research-and-development spending has been slowing over the past year, with spending growing by a single-digit percentage each quarter and declining less than 1% in the December quarter.
During its most recent earnings report, last month, Apple Chief Financial Officer Luca Maestri said in response to a question about the company's AI spending: "We obviously are pushing very hard on innovation on every front, and we've been doing that for many, many years. Just during the last five years, we spent more than $100 billion in research and development."
While Apple is hoping to show consumers and investors a more cohesive AI strategy on Monday, the company is facing challenges in its core iPhone business, which accounts for roughly half of its overall sales. For the past two years, iPhone sales have been mostly stagnant, and even declined more than 10% in Apple's most recent March quarter.
Investors and analysts said Apple could boost iPhone sales by refreshing the product with new AI capabilities, especially if some of those AI features only work with new or high-end iPhone models.
"AI is the thing that can get Apple out of the ditch," said Trip Miller, managing partner at Apple investor Gullane Capital Partners. "They're this big behemoth. It takes a new story to get them moving in a new direction. AI is that opportunity for them."
Apple last experienced a surge in iPhone sales during the pandemic, when the company was upgrading the phone with speedier 5G cellular chips. Many of those consumers who bought during the pandemic are also due for a new phone, so they might be inclined to buy, especially if the new capabilities impress.
Investors are also hoping there could be some sort of service-revenue boost with the new AI offerings, potentially in the form of a monthly subscription Apple charges or that third-party AI developers could charge.
With Apple's move to establish partnerships with external developers for more advanced AI capabilities, the company is showing that it is looking for ways to insulate itself from some of the risks and costs associated with these generative AI models, said David Wagner, a portfolio manager at Apple shareholder Aptus Capital Advisors. These new artificial-intelligence systems cost billions of dollars in computing resources, and some of them occasionally have made up facts and experienced other unexpected behaviors.
"Apple is passing off the liabilities of AI to a partner like OpenAI," Wagner said. "Apple knows which battles to fight and which ones not to fight. This isn't one they're fighting."
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