Apple Signals Profit Risks in AI and VR Shift: What It Means for Investors?

Apple Inc AAPL has cautioned investors about the uncertain profitability of future products as the tech giant pivots towards emerging markets, including artificial intelligence and virtual reality.

With a new addition to its annual report’s “risk factors,” Apple warned that some upcoming offerings might not match the revenue and profit margins of the flagship iPhone line, the Financial Times reports.

Apple also flagged potential challenges from “geopolitical tensions” in its latest filing, alongside safety risks tied to AI integrations.

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These concerns coincide with Apple’s push to keep pace with competitors like Alphabet Inc GOOG GOOGL Google and Meta Platforms Inc META in the AI sector, where it has recently launched new “Apple Intelligence” features and expects to integrate ChatGPT into Siri.

Amid regulatory scrutiny, Apple faces pressure over its high-margin services, including the App Store, as recent U.S. antitrust actions threaten licensing revenue from deals with Google.

This shift in focus comes as Apple broadens its product lineup to sustain revenue. Its Vision Pro headset, a “spatial computing” device priced at $3,499, marks the company’s latest attempt at diversifying its hardware portfolio, though sales remain modest.

Meanwhile, the company’s services business, contributing a gross margin of over 70%, has helped bolster profitability and offset slowing iPhone growth.

Apple’s gross margin, which hovered around 33% when the iPhone launched in 2007, has risen to over 40% as demand for high-end models increases.

BofA Securities analyst Wamsi Mohan projected a robust iPhone upgrade cycle in 2025 and 2026, fueled by demand for Gen AI capabilities, increasing Services revenue, higher margins from Apple’s in-house silicon, continued capital returns, and expanded AI-driven institutional interest.

Mohan expects minimal impact from the EU Digital Markets Act on Apple’s App Store performance.

Needham’s Laura Martin estimates iPhone sales to account for 89%-96% of Apple’s 2025 revenue.

Apple stock has gained over 20% year-to-date. Investors can gain exposure to the stock through the iShares Core S&P 500 ETF IVV and the Vanguard Total Stock Market ETF VTI.

Price Action: At the last check on Wednesday, AAPL stock traded higher by 0.48% to $224.53 premarket.

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