Apple Reportedly Looking to Debut Its AI-Powered Devices on September 10

According to Bloomberg News, Apple (NYSE: AAPL) is looking to debut its latest iPhones, watches, and AirPods on September 10 and these devices will go on sale beginning September 20. There has been a lot of enthusiasm for the upcoming products, especially the artificial intelligence (AI) enabled iPhone 16 which many analysts believe would help drive demand.

While Apple was seen as a laggard in the AI race, the company announced several exciting features at its Worldwide Developer Conference (WWDC) in June. It unveiled what it termed “Apple Intelligence” while also announcing that ChatGPT would be coming to Apple devices.

Commenting on the announcements, Apple CEO Tim Cook said, “All of this goes beyond artificial intelligence. It’s personal intelligence, and it’s the next big step for Apple.”

The company places a great deal of focus on privacy. It said that Apple Intelligence would run on multiple large language models (LLMs) with many of these running on individual devices. Apple said that it would use Private Cloud Compute models and even it won’t have access to this data.

Apple Looks Set for iPhone 16 Launch

Cook was quite upbeat on the artificial intelligence opportunity and during the fiscal Q3 2024 earnings call earlier this month, he said, “We are very excited about Apple Intelligence, and we remain incredibly optimistic about the extraordinary possibilities of AI and its ability to enrich customers’ lives. We will continue to make significant investments in this technology and dedicate ourselves to the innovation that will unlock its full potential.”

A section of the market has been turning bullish on Apple in hopes that the upcoming iPhone 16 would fuel a replacement cycle. Replying to an analyst’s question on the replacement cycle, Cook said, “it’s very difficult mid-cycle to call upgrade rates.”

He however added, “I would just say that with Apple Intelligence, we are very excited about the level of value that we’re going to provide to users. And we believe that, that presents another reason for a compelling upgrade.”

Apple said that the AI features would be added in a staggered way. Notably, there is a question mark over Apple releasing these features in China and Europe and Cook said that the company is “constructively engaged” with regulators in both the regions.

iPhone Sales Have Sagged

iPhone revenues have sagged in recent quarters and sales fell 1% YoY to $39.3 billion in the most recent quarter even as the metric was ahead of the $38.8 billion that analysts were modeling. Also, the revenues were higher YoY on a constant currency basis.

iPad revenues were $7.16 billion which was much better than the $6.61 billion that analysts were expecting. Mac revenues were $7.01 billion which was slightly lower than the $7.02 billion that analysts were expecting. Importantly, Services revenues rose 14% YoY to $24.2 billion and the metric was ahead of the $24.01 billion that markets were expecting.

Apple’s installed base of devices reached a new record high and while the company did not spell out the exact number, earlier this year it had said that the figure has surpassed 2.2 billion.

Apple Is Battling Slowing Sales in China

Apple’s sales in Greater China – which includes mainland China, Hong Kong, and Taiwan – fell 6.5% YoY in the quarter of which roughly half was on account of forex impact. Apple meanwhile continues to be optimistic about the region which is its second-biggest market after the US.

Cook said, “we continue to be confident in the long-term opportunity in China. I don’t know how every chapter of the book reads but we’re very confident in the long term.”

Notably, Apple has lost market share to domestic Chinese smartphone brands. In response to a question on whether the weakness in China is more an Apple-specific issue as the company is facing heat from domestic companies, Cook did not provide a straight answer and said, “competitive environment there (China) is the most competitive in the world.”

While Apple is betting on markets like India to offset the slowdown in China, the country might not be immediately able to fill the gap.

Budget handsets continue to dominate the Indian market with Samsung being the market leader. The bulk of the market is however with Chinese companies despite the ongoing troubles between the two neighbors who share a long and disputed border.

Low per capita income in India makes iPhones out of bounds for the majority of its 1.4 billion strong population.

Analysts on AAPL Stock

Morgan Stanley reiterated AAPL stock as an “overweight” and listed it as a top pick stressing that markets are undervaluing the AI upgrade cycle. Wedbush and Bank of America are also among the brokerages who are bullish on Apple ahead of the iPhone 16 launch. JPMorgan believes that AI-enabled handsets could trigger a massive replacement for iPhones – similar to the 5G supercycle.

However, not everybody is on board over the AI opportunity and KeyBanc is circumspect about the sales outlook. In its note, the brokerage said, “AAPL growth expectations looking out to FY25/FY26 have never been higher, while we continue to have concerns that there will not be a large increase in upgrade rates, which we expect will still be down.”

MoffettNathanson analyst Craig Moffett initiated coverage of Apple Monday with a neutral rating and a $211 price target. While he believes that Apple would win the AI race he is circumspect about the iPhone maker’s valuations.

In his note, Moffett said, “We fully expect that Apple’s well-crafted AI strategy will drive a substantial upgrade cycle.”

He added, “We further expect that AI will eventually underpin a paid-for digital assistant, giving yet another boost to their ultra-high-margin Services business. But all of that, and then some, is already in Apple’s stock price.”

Meanwhile, markets would closely watch the launch of the iPhone 16 as it’s not just yet another model from the company but would be a testimony to its AI strategy.