Earlier this month, Apple (AAPL 0.02%) unveiled its long-awaited entrance into the artificial intelligence (AI) race at its Worldwide Developers Conference. As per usual, Apple has not been at the forefront of this technological shift, instead waiting patiently to jump in at the right time.
Let's look at the announcements and some of the new features the company introduced and what this could mean for the stock.
New AI features and an OpenAI partnership
The biggest announcement to come out of Apple's development conference was its introduction of Apple Intelligence, which will power generative AI features across its devices. The company also said it will set a new standard for privacy when it comes to using AI through its Private Cloud Compute.
Apple Intelligence will be in beta this fall with the currently available iPhone 15 Pro and also iPads and Macs that use M1 chips. It will be incorporated into its iOS18, iPadOS 18, and macOS Sequoia operating systems.
Among the AI features Apple introduced are writing tools that will let users have their words rewritten to change tone or add humor; proofread and accept corrections; and summarize documents into things like paragraphs, bullet points, or lists. Its new AI features will also prioritize emails and offer responses.
The company's Image Playground feature will quickly create three types of image styles -- animation, illustration, or sketch-based -- for things like themes and costumes, and it can even incorporate photos of someone from a user's photo library.
The feature will be available in Messages as well as third-party apps. With images, the company will also allow users to search for photos based on descriptions and offer an improved editing tool that can remove distracting objects from photos.
Apple Intelligence will work with Siri too. The company said its voice assistant will now be able to take hundreds of new actions across Apple and third-party apps. Specific examples it cited were the abilities to tell Siri to send specific photos to a friend or to find flight information.
Another big development to come out of Apple's conference is its partnership with OpenAI to deliver some of its new features. Apple said Siri will be able to tap into ChatGPT's expertise for queries its own AI may not be able to answer.
According to reports, neither Apple nor OpenAI will benefit monetarily from their partnership. Apple is also still in talks with Alphabet and its Gemini chatbot, as well as with other chatbot creators for use in China.
Implications for Apple and its stock
None of the AI features Apple introduced are revolutionary. In fact, many similar features have already been introduced by others such as Microsoft and Alphabet.
The key for Apple, though, is it already has an enormous user base that's locked into its ecosystem, and it will be integrating AI into that ecosystem for these users. An iPhone user tends to upgrade their phone about every three years, but as improvements have become more incremental over time, the upgrade cycle has started to lengthen.
Given that newer devices will be needed to run the AI features, the company could see the iPhone upgrade cycle shorten again, which would help power its results. AI should also usher in new demand for apps, which can help drive increasing revenue from its App Store as well.
Apple stock has been a bit of a laggard compared to other AI-driven tech names this year with shares up about 11% year to date. However, investor optimism has picked up with its AI announcements, and the stock has jumped 13% in just the past month.
It currently trades at a forward price-to-earnings (P/E) ratio of nearly 33, which is toward the high end of its historical average. That's despite slow revenue growth in recent quarters, so the potential impact of an AI-fueled hardware upgrade cycle looks at least partly priced in by this point.
Data by YCharts.
As such, I'd stay on the sidelines and let some of the recent hype die down before considering Apple stock.
