Will Apple’s AI Investments Drive Hardware Sales?

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Apple (Nasdaq: AAPL) recently announced its fourth quarter results that continued to outpace market expectations. iPhone sales appear to have made a rebound. Apple is counting on its AI-initiatives to further drive sales of its hardware. But it is early days to see if that strategy will truly pay off.

Apple’s Financials

Apple’s fourth quarter revenues grew 6% to $94.93 billion, ahead of the market’s forecast of $94.58 billion. EPS of $1.64 was also ahead of the Street’s forecast of $1.60.

By segment, iPhone revenues grew 6% to $46.22 billion compared with the Street’s forecast of $45.47 billion propelled by the performance of the latest iPhone 16 and the continued strong sales for iPhone 15. Mac revenues grew 2% to $7.74 billion, falling short of the estimate of $7.82 billion. iPad revenues grew 8% to $6.95 billion, also falling short of the market’s forecast of $7.09 billion. Other product revenues fell 3% to $9.04 billion, missing the market’s estimated $9.21 billion. Services revenues grew 12% to $24.97 billion missing the market’s expected $25.28 billion for the quarter.

It ended the year with revenues of $391.04 billion compared with $383.29 billion reported a year ago. EPS dropped from $6.16 a year ago to $6.11. Apple’s profits were impacted by a one-time charge of $10.2 billion over tax issues in the European Union.

Apple did not provide an outlook for the quarter. It mentioned that it expects the current quarter revenues to grow low to mid-single digits and revenues for the year to grow in double digits, similar to the growth this year. The market estimates EPS of $2.36 on $127.28 billion in revenues for the current quarter and EPS of $7.48 on $419.65 billion in revenues for the current fiscal year.

Apple’s AI Focus

In June this year, Apple had announced the launch of Apple Intelligence, a new personal intelligent system that leverages generative models with personal context. Earlier this week, Apple made the first set of Apple Intelligence features available in US English for iPhone, iPad, and Mac users. The latest offering has been integrated into systemwide writing tools to help users refine their writing. It has also enhanced the user experience with Siri to make it a more natural and conversational approach. Apple integrated the technology with Photos to include the ability to create movies simply by typing a description, and by providing new ways to prioritize and stay in the moment with notification summaries and priority messages.

Apple plans to continue to launch additional intelligence features in December by building more powerful writing tools, a new visual intelligence experience that will use Apple Intelligence and ChatGPT integration as well as localized English in several countries.

Recently, Apple also launched several new computer models, including an upgraded iMac, Mac mini, and MacBook Pro that feature the M4 family of chips and Apple Intelligence. The new Apple Mini is powered with A17 Pro chip and delivers support for Apple Intelligence. Apple Intelligence harnesses Apple silicon and Apple-built generative models to understand and create language and images, act across apps, and draw from personal context to simplify and accelerate everyday tasks. The new iMac and Mac Mini feature the M4 chip and Apple Intelligence and combine generative models with industry-first privacy protections. They are leveraging Apple silicon and the Neural Engine to unlock new ways for users to work, communicate, and express themselves.

Apple designed M4 using the second-generation 3-nanometer technology. M4 is a system on a chip (SoC) that features an entirely new display engine to drive the precision, color, and brightness of the Ultra Retina XDR display on Apple’s devices. M4 has Apple’s fastest Neural Engine that is capable of up to 38 trillion operations per second. It is combined with faster memory bandwidth, along with next-generation machine learning (ML) accelerators in the CPU, and a high-performance GPU, making it a very powerful engine for artificial intelligence.

Apple is counting on AI to deliver its next round of growth. Its management believes that the few launches made so far are just the beginning of something big for Apple. The analysts are not very pleased with Apple’s pace on AI so far. Some analysts are expecting the new AI tools to spur users to upgrade devices, and thus drive sales. However, there are several others who also believe that it may not be the case due to limited hardware capabilities, and a still relatively small AI model .

Apple’s stock is trading at $228.70 with a market capitalization of $3.46 trillion. It touched a 52-week low of $164.08 in mid-April this year and a 52-week high of $237.49 in October.

Disclosure:?All investors should make their own assessments based on their own research, informed interpretations, and risk appetite. This article expresses my own opinions based on my own research of product-market fit, channel execution, and other factors. My primary interest is in product strategy. While this may have bearing on stock movements, my writings tend to focus on long-term implications. The information presented is illustrative and educational, but should not be regarded as a complete analysis nor recommendation to buy or sell the securities mentioned herein. I am not a registered investment adviser and I am not receiving compensation for this article. I am an investor in this company.

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