Investment bank JPMorgan believes Apple's combination of AI and privacy will persuade many users to upgrade to the new iPhone 16 through 2025, which should reassure investors worried about the company's future.
Siri icon overlaid on Apple Park
Ahead of WWDC on June 10, 2024, JPMorgan analysts told investors to expect Apple to focus on on-device AI capabilities, with some cloud and data center elements, but Apple will also prioritize on-device privacy and showcasing improvements to existing apps.
In the notes I saw Apple InsiderAnalysts expect WWDC to be a so-called “check all the boxes” announcement, aimed specifically at showing investors that Apple isn't falling behind in AI. Investors will be particularly focused on Apple's deals with OpenAI or Google, but regardless of how that happens, Apple's AI implementation will likely extend to all of its native apps, the analysts said.
JPMorgan doesn't expect third-party apps to benefit from Apple's AI features, at least initially, but that may change when the upcoming iPhone 16 series is released.
If that happens, the company expects App Store revenue to increase, partly because it expects more apps to be sold, but also because it believes developers will charge more for the AI features.
Analysts also expect the iPhone 16 series to benefit from the AI launch: Currently, around 15% of users say they will upgrade, but JPMorgan believes that could grow to 20%, which is what happened with the introduction of 5G.
But they also point out that 5G has benefited from increased demand for smartphones during the pandemic. By comparison, Apple is set to launch an AI-powered iPhone as it faces tougher competition in China.
Still, JPMorgan predicts that AI will lead to longer upgrade cycles, but that they will begin to take effect in 2024, with the impact being fully felt in 2025 with the arrival of the iPhone 16. This is despite the company previously claiming that iPhones wouldn't have AI capabilities until the iPhone 17 series in 2025.
Analysts still believe that major hardware improvements, such as more RAM in the device, will have to wait until the iPhone 17, but say user interest in AI features will drive sales sooner than that.
Meanwhile, WWDC is expected to remain focused solely on software updates — it's a conference for software developers, but while it has previously unveiled new hardware, it's not expected to do so this year.
