Gurman Weighs In On Apple's Overflowing Cup Of Challenges: Late Arrival To AI Party, App Store Regulatory Headwinds And More

Apple, Inc. AAPL shares came under selling pressure in the new year after a couple of analysts tempered their outlook for the tech giant. The view was echoed by Bloomberg’s Mark Gurman in his weekly ”Power On” newsletter published on Sunday.

iPhone Sales Stutter: Apple’s year-over-year sales decline is likely to extend to five quarters, with the company likely reporting another quarter of revenue decline, said Gurman in the report. If it does, it would mark the second consecutive holiday quarter with a revenue drop, he said.

Wall Street’s fears about weak iPhone sales this year could compound if Apple reports below-consensus revenue in China for the holiday quarter, the Apple specialist said.

Apple CFO Luca Maestri’s comments on the September quarter earnings call suggest iPhone sales during the holiday quarter will likely be only marginally stronger than a year ago, Gurman said, adding that the muted expectation is despite the iPhone 14 Pro sales getting hit by COVID-19 supply disruptions a year ago.

Even as iPhone sales, particularly in the key China market, remain a concern, Gurman said the company’s flagship device is unlikely to be its biggest challenge this year.

See Also: Everything You Need To Know About Apple Stock

Bigger Challenges Await: Gurman does not expect a material update with respect to the next iPhone iteration, namely the iPhone 16, but he expects Apple marketers to make ”slightly bigger screens sound like the biggest innovation since the original iPhone.”

Shrugging off the iPhone softness, the columnist outlined some of Apple’s biggest challenges ahead. They include:

• Falling way behind competition in generative artificial intelligence
• The Vision Pro headset unlikely becoming a real revenue driver for at least the next year and more
• Challenges associated with revitalizing the iPad and Mac, which have been underperforming in recent quarters
• Antitrust regulators continuing to scrutinize App Store

Late To AI Party: Apple’s AI tools may come nearly two years after OpenAI’s ChatGPT became popular, a year and a half after Microsoft Corp. MSFT and Alphabet, Inc. GOOG GOOGL launched their respective AI services and a year after Amazon, Inc. AMZN announced its revamped Alexa, Gurman said.

Apple expects to unveil its AI offerings at its annual Worldwide Developers Conference in June “as part of iOS 18,” he said. Its large-language model, dubbed Ajax internally, has been in testing internally since early 2023, he added.

“The totality of Apple's generative AI vision will take at least into 2025 to fully scale,” Gurman said. Meanwhile, the company’s biggest smartphone rival, Samsung, is gearing up to launch a Galaxy S24 line later this month that is all about new AI features, he added.

“Apple is way behind in AI and it's a major risk for a company that considers itself the top innovator in consumer technology,” the columnist said, adding “Samsung will do everything it can to highlight that deficiency to the market over the next several months.”

Regulatory Threat: The App Store will also face increasing regulatory challenges, particularly as a result of the Digital Markets Act in the European Union, Gurman said. Starting in March, Apple may have to have two versions of its App Store, one for the EU and another “for everywhere else,” he said.

“Those living in the EU will get to install apps from outside the store, use outside payment processors to pay for services and get better integration between first- and third-party apps and features,” he noted.

App Store revenue from Europe will likely decline, and Apple may be stymied by the “proliferation of new competitors that can use more of the technologies built into the iPhone,” Gurman said. He also sees regulators elsewhere clamping down on the App Store.

Apple ended Friday’s session down 0.40% at $181.18, according to Benzinga Pro data.

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