Apple shares moved lower in early Tuesday trading following an underwhelming iPhone 16 launch event that included the first look at some of the new AI features it plans to roll out over the coming months.
Apple (AAPL) , which earlier this year had fallen behind some of its big tech rivals in generating interest from its AI investments, is now seen as the best-placed company to deliver the new technology at the consumer-facing level through its 1.4 billion-unit installed base of iPhones.
Launching the latest generation of its signature smartphone, the iPhone 16, at its global headquarters in Cupertino, Calif., yesterday, Apple touted the infusion of its own AI, dubbed Apple Intelligence, into a host of new products, including its flagship smartphone.
"The next generation of iPhone has been designed for Apple Intelligence from the ground up," Chief Executive Tim Cook said. "It marks the beginning of an exciting new era."
The new iPhones will go on sale next week, and Apple is hoping the new AI-powered features will both trigger an upgrade cycle that spurs new phone purchases and see off the burgeoning challenges of Asia-based competitors such as Samsung and Huawei.
Apple's iPhone sales have been weakening
It's also looking to infuse interest in the iPhone, which accounts for around half its annual revenue, following a long stretch of weakening sales.
For the three months ended in June, iPhone revenue slipped 1% from a year earlier to $39.3 billion, while China sales were down 6.5% to $14.73 billion.
"The iPhone 16 range is hugely important for Apple at a time when consumer demand for new smartphones is slowing," said Ben Wood, chief analyst and chief marketing officer at CCS Insight. "The range is the first to support Apple Intelligence across the board, which will be central to the next decade of the iPhone."
That could help explain why Apple made no major price changes to its iPhone 16 lineup, which includes new camera features, a bigger display, longer battery life and AI functionality. The artificial-intelligence tech will roll out in beta version next month, with upgrades over the following months.
"We were disappointed by the lack of high-end pricing changes and limited AI rollout details while we await how aggressive telcos will be with promotions," said CFRA analyst Angelo Zino, who nonetheless held his buy rating on Apple stock in place.
Others, however, touted Apple's move to use the iPhone as a springboard from which to deliver AI technologies to the consumer.
“The stamp of artificial intelligence was all over the new iPhone," said Forrester’s vice president and principal analyst, Dipanjan Chatterjee, who nonetheless noted that the "lack of clarity on a timeline (for AI rollouts) will pour cold water on an upgrade hypercycle for the iPhone 16."
Apple iPhone trade-ins could be key
Chris Versace, TheStreet Pro's lead analyst, says trade-ins could spark some of that upgrade cycle, as they help "reduce the cost of new device ownership" and "should also help seed the addressable market for Apple Intelligence and corresponding subscription service offerings."
Apple has said the new iPhone lineup will range from $799 for the iPhone 16 to $1,199 for the iPhone Pro Max.
Related: Apple's new iPhones are built for AI
Wedbush analyst Dan Ives, a longtime Apple bull, was more optimistic on the impact of Apple Intelligence on iPhone sales. He lifted his price target by $15 to $300 a share following last night's "Glowtime" event.
"The new era of personalization and how consumers interact with their iPhones has now begun, and we believe this will cause a renaissance of iPhone growth (high-single-digit growth upside) for Apple over the next 12 to 18 months and drive [the] shares higher with a $4 trillion market cap in 2025," Ives said.
"We are continuing to see further indications across the Asia supply chain that this iPhone upgrade cycle could be a historical one setting the stage for a supercycle as currently we estimate roughly 300 million iPhones globally have not upgraded in over 4 years," he added. "In our view, Apple could sell north of 240 million iPhone units in FY25 as this AI-driven upgrade cycle takes hold."
AI paradigm shift at Apple, analyst Munster says
Deepwater Asset Management analyst Gene Munster, meanwhile, notes that Wall Street currently sees iPhone sales growing around 5% or 6% in Apple's next fiscal year, which begins next month. He calls the launch of Apple Intelligence a "paradigm shift" for the smartphone market.
"The functionality that people are going to use, the paradigm shift that I'm talking about, is going to be available in October and November for U.S. users," Munster told CNBC. "And that will be free if you upgrade your phone, your hardware, your Mac or your iPad."
Related: Analyst resets Apple stock forecast ahead of crucial rollout
Ultimately, Munster argues, Apple will be able to use a tiered pricing model that it can use to offer products, including a premium version of OpenAI, from which it can take a share of revenue.
"The timing and pricing of Apple's new products is noise," Munster said. "What matters is we are entering into an AI paradigm shift in which only Apple can provide a unique consumer experience."
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Apple shares were marked 1.15% lower in premarket trading to indicate an opening bell price of $218.38.
A portion of that decline, however, is likely tied to news that Apple has lost a years-long battle with the European Union over a $14.4 billion tax bill it owes to the Republic of Ireland.
Related: Veteran fund manager sees world of pain coming for stocks
