Apple shares fell last Monday (16 September) after warnings that demand for the firm’s new iPhone 16 Pro model has been unexpectedly tepid, say Matt Turner and Subrat Patnaik on Bloomberg. Last week’s launch event was deemed “underwhelming” and one analyst has noted that pre-order sales since then are down 13% from last year’s iPhone 15 launch. This would be a major disappointment for shareholders: Apple’s shares have perked up since May “as investors bet that Apple’s artificial intelligence (AI) features will boost sales of its latest line of iPhones”.
The idea is that those buying the latest iPhone will be able to access AI-based features that will be rolled out starting in October, says The Economist. But producing compelling features “will not be easy”. AI relies on large language models (LLMs) that are trained with graphics processing units (GPUs).
These “use so much energy it can take a nuclear power plant to fuel them”. They also “need huge amounts of memory and unfathomable quantities of data”, which “can cost hundreds of millions of dollars”. What’s more, even after these models are created, running them is “expensive”, with even slimmed-down versions still using “oodles” of computational power that will quickly drain a device’s batteries.
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Will Apple shares get a boost from AI?
Whether the technology is there or not, it’s not surprising that Apple is turning to AI given that past improvements to the iPhone have helped drive sales, says Robert Cyran on Breakingviews. For example, the iPhone 6’s bigger screen helped propel sales upward by 50% in 2015.
But with the smartphone market “mature” and most new developments “incremental”, customers now only buy a new handset if they need to replace one. As a result, analysts are forecasting a mere 7.5% rise in iPhone revenue over the next year. Nonetheless, the success or failure of this new phone “will offer one of the first peeks into AI’s financial reality”.
23 Sep 2024: Article updated to reflect the date of Apple's iPhone 16 launch and the subsequent market reaction.
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