Apple unveiled a long-awaited AI strategy on Monday, integrating its new “Apple Intelligence” technology across its suite of apps, including Siri, and bringing OpenAI’s chatbot ChatGPT to its devices.

During a nearly two-hour presentation at Apple’s annual developer conference, executives, including CEO Tim Cook, spotlighted how the voice assistant Siri would now interact with messages, emails, calendar entries, and third-party apps. Siri will also be able to write emails and adjust its tone to suit different occasions.

Renowned for prioritizing user safety, the iPhone maker emphasized its commitment to privacy, distinguishing itself from competitors Microsoft and Google.

Privacy will be “at the core” of Apple’s new features.

However, Wall Street’s reaction was tepid, with investors hoping for more impressive AI advancements and reassurances of Apple’s competitiveness against market leader Microsoft.

Apple shares closed down nearly 2% following the event.

However, Apple’s stock, which has lagged behind other Big Tech firms this year, saw a 13% rally last month in anticipation of the event.

“There isn’t anything here that propels the brand ahead of its as-expected trajectory of incrementalism,” said Dipanjan Chatterjee, an analyst at Forrester.

“Apple Intelligence will indeed delight its users in small but meaningful ways, but it brings Apple level with, not head and shoulders above, where its peers are at.”

Will It Work For Apple?

Apple’s strategy contrasts with the enterprise-first approach of its rivals. The company aims to convince its more than 1 billion users—most of whom are not tech enthusiasts—of the necessity of this emerging technology.

Apple executive Craig Federighi described Apple Intelligence as “AI for the rest of us.”

Despite the new AI features, Apple remains heavily dependent on iPhone sales, and some analysts believe the impact of these features will not be immediately significant.

“In this early race, it feels that Alphabet, and even more so Microsoft, are in better shape following their initial moves, thanks to their cloud assets,” said Paolo Pescatore, analyst and founder of PP Foresight.

How It Will Work
The AI features unveiled at Apple’s Worldwide Developers Conference will be integrated into the latest operating system for its devices, showcased during the event.

Each year, Apple utilizes this event at its Cupertino, California headquarters to reveal updates to its apps and operating systems, while also introducing developers to new tools for their apps.

Siri Upgrade
The revamped Siri promises enhanced control, addressing past challenges where the assistant struggled to understand user intentions and app functionalities.

Siri will leverage ChatGPT’s capabilities and seek user permission before accessing the OpenAI service, highlighting Apple’s emphasis on privacy.

However, the collaboration raised immediate privacy concerns, with Tesla CEO Elon Musk stating he would ban Apple devices from his companies if the startup’s tech is integrated at the OS level.

Apple announced that the ChatGPT integration will roll out later this year, with additional AI features to follow. The chatbot will be accessible for free, with user data remaining unlogged.

Subsequently, Apple released a paper detailing how its features, including those powered by OpenAI, prioritize customer data safety. This includes handling more complex tasks through a new service called Private Cloud Compute.

Moreover, Apple intends to incorporate technology from other AI companies into its devices, reportedly exploring a partnership with longtime search partner Google.

To support the AI features, Apple plans to utilize a blend of on-device processing and cloud computing. These features will initially be available on the latest iPhones, starting with the iPhone 15 Pro, and upcoming models.

Apple, known for its stance against cloud processing of consumer data due to privacy concerns, emphasizes that its approach offers enhanced privacy protections, with in-house chips in data centers featuring built-in security features.

Analysts speculate that Apple’s use of its own chips could also mitigate the need for costly Nvidia chips.

What Else Is New
Apple has announced significant updates with the release of iOS 18, promising increased customization options for the iPhone home screen.

This update includes a notable “lock an app” feature, which offers users the ability to safeguard sensitive information by locking specific applications, thereby tightening control over data within the operating system.

Furthermore, Apple is expanding the availability of its mixed-reality headset, Vision Pro, to eight additional countries, including China and Japan.

Accompanying this expansion is the introduction of VisionOS 2 software for the headset, which leverages machine learning to produce natural depth photos and introduces new gesture functionalities.

Elon Musk Shows The Door
In a surprising turn, billionaire Elon Musk declared his intention to ban Apple devices from his companies should the iPhone maker integrate OpenAI at the operating system level.

Musk, CEO of Tesla, SpaceX, and owner of social media company X, criticized such integration as “an unacceptable security violation,” emphasizing his stance on device security.

Apple and OpenAI refrained from immediate comment in response to Musk’s statements.

Earlier in the day, Apple had announced a partnership with OpenAI to bring ChatGPT technology to its devices, highlighting its commitment to AI development with privacy as a core principle. Apple reassured users that AI features would utilize a blend of on-device processing and cloud computing, ensuring data security.

Musk’s outspoken criticism extended to Apple’s reliance on OpenAI, questioning Apple’s ability to ensure user security and privacy while integrating third-party AI technology.

Despite Musk’s vocal opposition, Ben Bajarin, CEO of consulting firm Creative Strategies, expressed skepticism that others would follow suit, noting Apple’s efforts to educate users on the security of private cloud data storage.

Musk’s contentious relationship with OpenAI culminated in a lawsuit against the organization and its CEO, Sam Altman, alleging a departure from the startup’s original mission of developing AI for humanitarian purposes.

Additionally, Musk founded xAI, a startup aimed at challenging OpenAI and developing alternatives to ChatGPT.

Apple Sales
Apple’s recent push into AI technology not only signifies a significant software upgrade but also serves as a strategic move to boost iPhone sales.

At Monday’s developer conference, as Apple showcased its integration of cutting-edge AI, including technology from ChatGPT, it aimed to revitalize its user base of over 1 billion customers and counteract a decline in iPhone sales amidst fierce competition and economic uncertainties.

The software enhancements, requiring at least an iPhone 15 Pro or Pro Max, are anticipated to drive a surge in new purchases, with analysts predicting the most substantial upgrade cycle since the iPhone 12 launch in 2020, which capitalized on the introduction of 5G connectivity.

Analyst Gil Luria of D.A. Davidson hailed the conference’s offerings as the most compelling seen thus far, underscoring the potential impact on consumer behavior.

Apple introduced its vision of “Apple Intelligence,” emphasizing generative AI capabilities that can produce text, images, and other content on demand.

Demonstrations showcased the AI’s ability to create custom emojis, convert cartoons into text for messaging, and refine email content for a more professional tone. Siri, Apple’s digital assistant, was also highlighted as a gateway to accessing ChatGPT’s assistance.

However, some analysts expressed skepticism regarding the immediate consumer response, suggesting that the allure of enhanced AI may not translate into a rush to purchase.

Forrester analyst Dipanjan Chatterjee cautioned that while the improved Siri-powered devices might mitigate recent revenue declines, they might not suffice to cultivate a new wave of enthusiastic followers.

Tejas Dessai of Global X echoed investor sentiment, indicating a desire for a more robust AI strategy from Apple. The company’s stock experienced a 2% decline following the announcement.

AI
Apple’s AI advancements are not universally available across all iPhone models, thus requiring users to upgrade to the iPhone 15 Pro or Pro Max, released in September 2023.

These AI features, designed for secure on-device data processing, rely on the advanced chips integrated into Apple’s newer smartphones.

This presents a significant opportunity for Wedbush Securities analyst Dan Ives, as approximately 270 million iPhones have remained un-upgraded for four years. He anticipates a notable portion of the Apple user base will transition to the iPhone 16, driven by the allure of Apple Intelligence as the long-awaited “killer app.” The iPhone 16 is slated for release later this autumn.

Gene Munster, managing partner at Deepwater Asset Management, highlights Apple’s seamless integration with ChatGPT as an additional advantage, simplifying the user experience and reducing friction in utilizing AI capabilities.

According to the company’s annual report, Apple’s iPhone revenue for the fiscal year ending September 2023 saw a slight decline from the previous year, amounting to $200.6 billion compared to $205.5 billion. AI is just one facet of Apple’s appeal to consumers.

Martin Yang of Oppenheimer & Co. notes that while consumers may prioritize features like larger displays or improved cameras, the AI updates cater to early adopters and differentiate Apple for their ability to facilitate actions within and across applications.

Yang predicts that this emphasis on actionable AI will position Apple as a frontrunner in consumer AI innovation.