HSBC warns Apple’s slow AI rollout may delay iPhone upgrades

HSBC has warned that Apple’s slow rollout of AI features introduced at WWDC 2024 has “failed to trigger significant improvement in user experience,” potentially leading users to delay iPhone upgrades. The investment bank’s analysis suggests that initial hopes for AI to accelerate the iPhone renewal cycle have been short-lived, with delays in launching the AI-powered Siri particularly concerning for Apple’s hardware sales strategy.

What you should know: Apple’s AI strategy isn’t delivering the expected boost to iPhone sales, according to HSBC, a global investment bank.

• The iPhone still represents about half of Apple’s total sales, making upgrade cycles critical to the company’s financial performance.
• “Initial hopes that AI would accelerate the renewal cycle have been short-lived,” as the company’s AI offerings have “so far failed to trigger significant improvement in user experience.”
• HSBC warned that “delays in launching the AI-powered Siri may lead many users to postpone handset upgrades.”

Conflicting data: HSBC’s assessment contradicts recent consumer research showing AI features aren’t a primary upgrade driver.

• A CIRP report found that “only 13% of US iPhone buyers reported upgrading specifically to take advantage of new features.”
• Instead, “40% of buyers indicate they purchased their new iPhone because of a problem with their old one,” while “27% replaced a phone that was completely inoperable or was lost or stolen.”

Apple’s backup plan: The company may need to rely on traditional hardware improvements to drive iPhone 17 sales if AI features continue to underwhelm.

• HSBC notes that Apple may have to focus on “more traditional hardware spec bumps as part of its iPhone 17 story” to boost sales.
• The bank expects “better specs with iPhone 17 in September should entertain the demand, in-line with what has been seen with the iPhone 16.”

Additional risks: Rising tariff tensions pose another challenge for Apple’s business strategy.

• HSBC highlights tariff-related tensions as a key risk, noting that Apple “cannot re-localize production fast enough.”
• The bank estimates a 20% tariff impact on Chinese imports could affect Apple’s operations.

Market outlook: HSBC maintained a Hold rating on Apple stock with a $220 price target, while shares currently trade at $211.18 in roughly the same range they’ve maintained for the past three months.