Finance
Should You Buy Apple Stock After the AI Announcements?
Tech industry analysts have done just that Apple‘S (NASDAQ: AAPL) Worldwide Developers Conference (WWDC) was on their agenda every year. That’s because the tech giant often takes advantage of that event to announce important news that will be relevant to its financial and stock performance. That was certainly the case this year. On Monday, the first day of WWDC, management finally made public its long-awaited plans in artificial intelligence (AI).
The stock jumped Tuesday because of this news. But is what the company revealed a good reason to buy Apple stock?
A quick look at Apple’s AI plans
Apple called the AI overhaul of its devices “Apple Intelligence.” It will integrate AI capabilities into the next version of its mobile operating system, iOS 18, a change that will impact many functionalities of its already high-performing devices. It’s worth pointing out that these AI features will only be available on the latest versions of the iPhone (15 Pro and 15 Pro Max), and on some iPads and Macs with the required capabilities. But what exactly are these characteristics? There are too many to discuss in detail here, so let’s just mention a few.
A notable upgrade gives users free access to ChatGPT without creating an account via Apple’s famous digital assistant, Siri. Elsewhere, the AI-powered writing assistant will help improve people’s writing. Other AI tools will be involved in creating and editing images, searching for specific moments in videos, reading summaries of email messages without opening them, displaying summaries of video calls and much, much more.
These tools will completely transform the way people use Apple devices, hopefully for the better. But what do they mean for investors?
Focus on the bigger picture
All of these useful AI tools will be integrated into Apple’s operating systems, making them free to their users. How exactly will that help Apple, especially since few of them (probably none of them) are original or unique tools to Apple?
To give just one example, the new writing assistant looks a lot like Grammarly’s. But unlike Grammarly, Apple has 2 billion devices in active use worldwide. The tech giant’s loyal customer base – at least those with the right devices – will automatically have access to these tools. That will make competing platforms that perform similar tasks less attractive – especially those that people have to pay to use.
In other words, Apple’s AI overhaul helps strengthen the ecosystem, making it more attractive to those already in it and to those on the outside looking in. It could also incentivize existing Apple customers to upgrade, as only those with enough new devices will have access to these tools. Many people won’t find it necessary to buy a new iPhone to use certain AI features, but some almost certainly will. It will be interesting to see if sales of Apple’s latest iPhones will experience an AI-related boom.
The bigger picture, however, is that Apple’s massive customer base gives Apple a powerful competitive advantage, and anything that makes this ecosystem stronger and more robust will be good for its long-term prospects. Apple knows its future lies in its services segment, whose success largely depends on the number of installed devices. The services unit has generally been growing faster than the rest of the business for some time, and the most recently reported quarter was no different.
During the second quarter of fiscal 2024, which ended March 30, Apple’s revenue fell 4% year over year to $90.8 billion. But services revenue rose about 14% to $23.9 billion – a record for the company.
This fast-growing, high-margin segment will ultimately have a huge impact on Apple’s profits. The arrival of Apple Intelligence helps the company get closer to that possibility. That makes it an excellent reason to buy this tech stocks.
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Prosperity Junior Bakiny has no position in any of the stocks mentioned. The Motley Fool holds and recommends positions in Apple. The Motley Fool has one disclosure policy.
Should You Buy Apple Stock After the AI Announcements? was originally published by The Motley Fool
