Apple's AI evolution is not a revolution

Apple, the maker of iPhones, iPads and Mac computers, finally unveiled its first generative artificial intelligence product on Monday. As expected, the new feature, widely known as Apple Intelligence, will be firmly integrated into an update to the company's operating system due later this year. Also as expected, the update will also include a major upgrade to Siri, Apple's 12-year-old digital assistant that has often been derided as not being very smart.

Apple has long struggled to pull off surprises at its events, given its sheer size and the intense media and investor interest in the company, but the stakes were especially high this time: Fears of Apple's entry into the AI ​​race have dogged trillion-dollar rivals for the past 18 months.

That has sparked excitement among investors: Apple's stock, which has lagged other big tech companies over the past year, rose 14% between the release of its second-quarter earnings last month and the start of its Worldwide Developers Conference on Monday, its biggest gain in that period in a decade.

But many of the new features Apple demoed on Monday, like image search and help composing emails and messages, are similar to new AI tools already being offered by Microsoft and Alphabet Inc.'s Google. Apple also said the AI ​​services it announced on Monday — including access to OpenAI's latest version of ChatGPT — would be available for free, leaving questions about how the company will generate additional revenue from its latest technology.

It's also unclear how much the partnership with OpenAI will cost Apple, given the high cost of AI computing and OpenAI's strong lead in the field.Apple's shares fell about 2% by the close of trading on Monday, marking the worst drop the company has experienced following the start of its Worldwide Developers Conference since 2010.

Apple's AI debut was always expected to be complicated. Unlike peers that have already branched out into the technology, Apple generates most of its business from selling devices, and the company said Monday that many of its new AI features will be processed on-device rather than relying on its cloud-computing network. That makes Apple's hardware products a key part of its AI strategy. But those products rarely debut at the company's developer conference, which typically focuses on upcoming updates to the operating systems that power its devices. New iPhones, Apple's most important product line, are typically announced in early September.

So it's likely Apple is saving its AI muscle until then. After three consecutive years of sluggish sales, the upcoming iPhone cycle is a crucial one. And AI might not be the easiest sell to prospective iPhone buyers. In a report on Monday, UBS analyst David Vogt cited a recent survey of smartphone users that found only 27% of those outside China were interested in a device with AI-generated capabilities. Price and privacy were cited as the top areas of concern.

Apple's track record on privacy is strong enough, and its marketing prowess has been demonstrated even during sluggish iPhone sales, when the company was able to steer users towards the more expensive Pro versions of the iPhone, which have better chips and cameras. Upselling AI should be Apple's next big thing.

Write to Dan Gallagher at dan.gallagher@wsj.com.