Megatech companies Alphabet Inc. (NASDAQ: GOOGL) and Microsoft Corp. (NASDAQ: MSFT) posted impressive earnings, which drove both stocks higher. So far this year, Alphabet shares have risen 24%, and Microsoft’s shares have risen 8%. Apple Inc. (NASDAQ: AAPL) shares have fallen 12%. Poor earnings will almost certainly accelerate the sell-off. The same could happen if major investor Warren Buffett sells shares.
Apple needs to prove two things to investors, neither of which is likely. The first is that earnings are moving in the right direction and will continue to do so. The other is that it has an AI play. It has not made any product announcements that show it has moved in that direction. Companies with strong AI presences created a divide between the “haves” and “have-nots” of tech. Apple is a “have-not.”
There are rumors of a deal between Apple and OpenAI, among the largest, if not the largest, AI companies. Bloomberg reported, “Apple Inc. has renewed discussions with OpenAI about using the startup’s technology to power some new features coming to the iPhone later this year.” Apple would have AI features in the iPhone launched in September and in iOS 18, the next update of its operating system.
However, September is a long time away, and AI software features and functions are being released across the industry at a pace close to light speed. Apple must demonstrate that it can simultaneously solve current problems and address the future.
The challenge for Apple is clear: it must halt the decline in iPhone sales, particularly in China. Two surveys indicate that iPhone sales in China were down about 20% in the first quarter, with local competition, led by Huawei and Xiaomi, posing a significant threat. Given that China is the world’s largest smartphone market, the future of the iPhone is critical and should not be underestimated.
Finally, Apple has to show that the next iPhone is much better than the current iPhone 15. It may need to be better to have a slightly better camera and faster processor. Apple has a product problem that may take more than AI features to solve.
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