- Apple analysts are starting to wonder how much time the company has to find an AI strategy before consumers rethink their iPhone purchases.
- OpenAI’s May acquisition of Jony Ive’s startup IO for $6.5 billion put added pressure on Apple.
- Still, Apple likely generated about $40 billion in iPhone sales in the fiscal third quarter, according to a FactSet estimate.
Apple mostly stays out of the spotlight as its megacap tech rivals boast about constructing island-sized data centers brimming with Nvidia chips to power future AI devices.
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Wall Street is becoming alarmed.
With Apple shares down more than 15% as of Tuesday’s closing, the iPhone manufacturer is the second-worst performer among the so-called Magnificent Seven this year. The only other company in the group that has lost value in 2025 is Tesla, which is down 20%.
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Despite postponing the next version of Siri until at least next year, Apple has let its fans and investors down by refusing to provide more information about its AI strategy. Even worse, in May, longtime Apple design leader Jony Ive sold his fledgling business IO to OpenAI for $6.5 billion. Sam Altman, the CEO of OpenAI, stated at the announcement that his business is now developing new hardware.
Apple’s uncertain role in the future of AI and its lack of a defined competitive strategy are highlighted by OpenAI’s aggressive move. Analysts are concerned that Apple’s stance may begin to negatively impact iPhone sales, which are now at record highs.
Krish Sankar, an analyst at TD Cowen, wrote in a note on Monday, “We believe Apple still has approximately 1.5 years to effect a compelling solution, but the incomplete AI strategy is still the biggest overhang.” He suggests purchasing the stock.
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When Apple releases its fiscal third-quarter earnings on Thursday, don’t expect the company to focus on its AI issue. The corporation will probably be too busy discussing its lucrative services division and the $40 billion worth of iPhones it is predicted to sell, according to a FactSet estimate. It is anticipated that the services division’s revenue will increase by roughly 11% to $26.8 billion, more than doubling the company’s overall growth rate.
Because of its outstanding customer satisfaction ratings and capacity to retain customers who own several Apple devices, Apple has fortunately established a strong defense against the threat posed by artificial intelligence. Therefore, even if AI may challenge Apple’s position as the leading manufacturer of computer hardware, the business still has some time to spare.
Gene Munster, the founder of Deepwater Asset Management, claims that the continued popularity of iPhones, Macs, and the Apple Watch will reduce pressure on Apple in the AI space over the coming year. Furthermore, according to a recent research by Munster, rivals like Google’s Android haven’t discovered a game-changing AI capability yet.
“With AI, the substance will exceed the hype, and this will be kind of a re-positioning, or a re-ranking of tech leadership,” Munster stated in June. “It’s going to happen, but it’s not going to happen this next year.”
Investors believe Apple has already missed a chance to profit from AI. Apple released features that condensed emails and texts, created emoji-style pictures, and redesigned Siri, the voice assistant, in the summer of 2024. Together, they were referred to as Apple Intelligence.
But early this year, the key feature—a more flexible Siri—was postponed until 2026.
When Apple Intelligence was first introduced, analysts anticipated it would create a “super cycle,” or encourage consumers who would have otherwise delayed updating their iPhones to buy new models in order to take advantage of the AI features. However, the higher sales never materialized.
“We haven’t seen that materialize in the way that the market had initially expected,” Melissa Otto, an analyst with Visible Alpha Research, stated.
Apple chose not to respond.
According to a survey conducted by Consumer Intelligence Research Partners, the great majority of consumers who purchased a new iPhone last year did so because their old model had stopped functioning. Just 13% of respondents to this year’s survey claimed to have bought additional features, such as AI. According to the company, 89% of American iPhone owners who purchased new phones earlier this year decided to switch to another Apple product.
Apple is well aware of the dangers that lie ahead. In a court dispute earlier this year, Eddy Cue, the company’s chief of services, stated as much.
“You may not need an iPhone 10 years from now, as crazy as it sounds,” added Cue.
There will probably be two primary sources of competition for Apple in the AI space. There is Google, which sells Android smartphones, and AI-powered devices that may not even have screens but instead use voice assistants or other forms of input.
The latter will be released by OpenAI, and startups have experimented with various form factors like pendants, pins, and smart glasses like the Ray-BanMetadevice.
Google has been incorporating its Gemini assistant into Android with great vigor. Google Maps and YouTube are among the programs that users of Android 16, the most recent version of the operating system that powers Samsung and other phones, can manage with Gemini. In addition to Siri’s present capabilities, users can ask Gemini to generate to-do lists based on YouTube app instructions.
Even said, Sundar Pichai, the CEO of Google, has stated that it might take a few years before any AI-focused gadget could compete with smartphones.
“I still expect phones to be at the center of the experience for the next two to three years at least,” Pichai stated during last week’s Alphabet earnings call.
Laura Martin, a Needham analyst, stated on CNBC last week that Apple needs to step up its efforts in the AI race. Martin claimed that in terms of artificial intelligence, Apple lags one to two years behind rivals like Google.
“If Android is going to integrate all the latest Gemini and generative AI, the next time you replace your iPhone a year from now, two years from now that Android ecosystem is going to have more and more cool stuff in it, and then Apple starts losing its installed base,” Martins added.
With the acquisition of Ive, who is recognized for having contributed to the design and introduction of the iPhone, Apple Watch, and other significant products, OpenAI may emerge as Apple’s most formidable rival in the AI hardware market.
However, OpenAI has not provided a timeframe for the release of its hardware or even a list of its upcoming releases. Years will probably pass before a product is released, and the business will then need to determine how to produce and distribute hardware on a large scale.
The iPhone was a low-volume product for early adopters when it was originally introduced in January 2007. Only 1.4 million iPhones were sold by Apple in the first year, with the majority of those sales occurring in the fourth quarter. This is a very small portion of the 1.15 billion mobile phones that were sold during that year, of which over 435 million were Nokia models. The App Store wasn’t launched by Apple until 2008.
Four years later, Apple’s unit sales had surpassed those of Motorola, HTC, an early Android phone manufacturer, and RIM, a manufacturer of Blackberries. By 2011, Apple had expanded to sell over 80 million iPhones annually, while Nokia’s sales had plummeted.
According to Munster, OpenAI’s device is expected to be launched the next year and begin distributing to consumers in 2026. Apple still has time, but time is running out.
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