Apple’s (AAPL) latest financial results showed a mixed bag, with product revenue slightly underperforming expectations at $97.96 billion against an anticipated $98 billion. Despite this, 1Q earnings per share came in at $2.40, surpassing the $2.35 estimate, while total revenue was $124.30 billion compared to the projected $124.12 billion. However, iPhone revenue fell short at $69.14 billion versus the expected $71.04 billion, highlighting a reliance on services to drive growth. In a recent discussion on Bloomberg TV, Gil Luria, DA Davidson’s Head of Technology Research, delved into how Apple’s approach to AI could be its significant advantage moving forward.
Luria pointed out that while Apple Intelligence, the company’s suite of AI features, isn’t yet a direct revenue driver for services, its real potential lies in catalyzing an iPhone upgrade cycle. Currently, subtle AI enhancements like email summaries and intelligent notifications are being integrated into Apple’s ecosystem without overt branding as AI, suggesting a slow but strategic rollout. The goal, according to Luria, is to make these features so integral to the user experience that they naturally encourage users to upgrade their devices, subsequently boosting sales of wearables and eventually services.
The conversation also touched on Apple’s strategic positioning in AI, particularly in light of recent developments like DeepSeek‘s model, which offers powerful, compact AI solutions that could run on devices like iPhones without reliance on extensive cloud computing resources. This development aligns with Apple’s philosophy of on-device processing, which Luria believes could position Apple at the forefront of consumer AI delivery within the next year or two. He emphasized that while the rollout has been slower than anticipated, especially post the Worldwide Developers Conference, Apple’s approach is meticulous, focusing on integrating AI seamlessly into user experiences rather than as an additional feature.
Addressing criticisms about Apple’s AI capabilities, particularly with Siri, Luria defended Apple’s strategy. He highlighted that Apple possesses a vast amount of user data, from calendars to conversation histories, which provides a unique advantage in delivering personalized AI insights. However, he conceded that the integration of AI into everyday use rather than as a separate application or service takes time.
Luria also discussed the potential for partnerships in the AI space, noting that companies like Google (GOOG) and OpenAI are keen to work with Apple due to its massive consumer base. This collaboration allows Apple to leverage the latest AI models without the need for extensive internal development, at least until smaller, device-based models become more prevalent.
In conclusion, while Apple’s current financials show a lean towards services for growth, Luria sees a robust future where AI, particularly through Apple Intelligence, could redefine user interaction with Apple’s products, driving both hardware and service revenue through enhanced user engagement and product necessity.
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