Apple’s upcoming earnings report on Thursday is anticipated to shed light on its strategy to incorporate generative AI into iPhones, aiming to rejuvenate sales in the crucial Chinese market.
Despite Apple’s long-standing reputation as a top stock on Wall Street, its shares have recently lagged behind other Big Tech companies, dropping over 10% year-to-date amid concerns over its delayed rollout of AI services and Huawei’s resurgence in China.
Analysts predict a significant decline in iPhone sales, which contribute approximately half of Apple’s revenue, with a projected 10.4% drop in the first quarter of 2024, marking the sharpest decline in over three years, according to LSEG data.
Analysts estimate a 5% decline in Apple’s total revenue for the second quarter, spanning January through March, representing its largest revenue dip since the December quarter of 2022.
Earlier this year, Apple lost its title as the world’s most valuable company to Microsoft, with its market value now standing at $2.68 trillion post the 2024 share price decline.
The pressure to revitalize its flagship device has intensified as weak revenue and falling shares underscore the need for significant upgrades.
In pursuit of this, Apple is reportedly in discussions with OpenAI and Google-owned Alphabet to integrate genAI features into the iPhone, potentially unveiling them at its anticipated largest-ever annual developer conference in June.
Analysts anticipate that such AI integration could drive demand for the upcoming iPhone series, slated for announcement in the fall.
While other major tech firms have extensively discussed their AI strategies, Apple CEO Tim Cook has been relatively reticent on the topic.
Incorporating AI features could enhance Apple’s competitiveness against Huawei and Samsung Electronics, particularly as Samsung reclaimed its position as the world’s top smartphone vendor earlier this year, driven by demand for AI features in its Galaxy S24 smartphones.
Analyst Toni Sacconaghi from Bernstein upgraded Apple’s shares, anticipating a strong iPhone 16 cycle driven by replacement cycle tailwinds and incremental generative AI features.
Notably, Apple’s China business, historically exhibiting higher volatility than its business, is viewed as more cyclical than structural.
Thursday’s earnings will also provide insights into Apple’s stock buyback plan and the performance of its latest product, the Vision Pro headset, which experienced initial enthusiasm but has shown signs of slowed demand.
Additionally, soft demand is expected in other hardware segments, including iPads and Macs, which are poised for declines in the March quarter.
Apple’s services business, encompassing revenues from the App Store and subscription services like Apple TV, is anticipated to remain a bright spot with a projected revenue growth of 7.7%.
