Join our daily newsletter At The Bell to receive exclusive market insights
If the Artificial Intelligence (AI) thematic is developing cracks, you won’t see them by looking at the still strong Mag 7 stock prices – particularly NVIDIA.
Nor will you see evidence of cracks in the AI hype in any relevant company’s messaging.
Across Silicon Valley (and governments, workplaces, and just about everywhere else), the promises of next-generation search engines, chatbots, and sorting programs continue to imply great optimism for societal progress.
So where do you see cracking?
There’s one pretty big and important place where you can see cracks in the AI thematic emerging. It’s a little company called Apple.
You know: The biggest company on Earth right now.
How is AI hype ‘cracking’ then?
We’re talking about iPhone 16 sales. Or the lack thereof. To remind you, AI was a massive selling point of the latest iPhone evolution.
But on Wednesday, yet another round of analysts downgraded the stock as concerns linger in the financial world over whether the iPhone 16 was a good bet, or not.
This was of concern to some even as far back as July 2024.
“The launch of Apple Intelligence is generally considered to be the reason for [a contemporaneously reported] increase in iPhone 16 orders. However, Apple Intelligence will only be available in Beta for US users,” analyst Ming-Chi Kuo wrote on his website.
“Regardless of whether Apple Intelligence alone can drive replacement demand (which is another big topic), the expectation that consumers will buy the new iPhone 16 for the Beta version of Apple Intelligence in 2H24 may be too optimistic.”
Sales data definitely doesn’t suggest a revolutionary uptick in sales.
Apple even re-named what AI stands for – from ‘Artificial Intelligence’ to ‘Apple Intelligence‘ – in the lead-up to releasing the latest smartphone favourite.
But there’s this pesky one big problem. People aren’t buying. So far, that has helped push Apple’s share price down -11% so far in January.
And that’s what I’m talking about when I ask if cracks are beginning to show in the AI hype machine. After all, the company bet big on AI as a selling point. In many ways, the iPhone 16 was a testing of the waters.
But it’s also just a phone. It’s a phone with one gimmick attached – Apple Intelligence lets you, say, come up with new emoji designs, and other such things, but all are fairly ‘gimmicky.’
And clearly, that alone hasn’t been enough to persuade people to shell out for a new phone.
So if we accept the iPhone 16 as an indicator to test public enthusiasm for AI in general (and what better way to express enthusiasm than make a large purchase,) well… the AI hype narrative looks a little embarrassed.
How does that prove all AI hype is ‘cracking?’ You’re just a hater bro
I admit both charges. It doesn’t absolutely prove it one way or the other. I’ll admit that. Let’s go through counter-arguments.
The one big counterargument to my claim here is the price point of the iPhone 16. The website advertises a price of $1.3K. There’s a cost of living crisis, after all.
Then there’s the fact much of that the sales decline is also taking part in China market places, and there are geopolitical concerns there.
So it’s China’s fault?
Well, no. Perhaps everybody in China is desperate for AI, and would buy it, but not for the fact Huawei’s Mate XT is out. (A phone which, by the way, has a tri-fold design.)
Between the lines: There’s the issue where Apple is a U.S. company competing with China’s Huawei at a time of heightened geopolitical rivalry.
Apple had, however, already rattled some analysts’ feathers late last year when it was revealed iPhone sales wholemeal were already falling in China.
Those declines continue. In the most recent iteration of data, we’ve learned iPhone sales in China fell around 20% QoQ in the last three months of 2024. That was only adding onto a YoY trend with all four quarters in contraction.
Reuters reports iPhones in China don’t have the same AI capabilities advertised in markets elsewhere. That’s because Apple Intelligence is apparently only in English.
Let’s say you’re right. Will it affect the ASX?
Not this, not on its own. But if this is the first real evidence we have of a pending slowdown in newsflow from companies about AI due to weaker-than-expected sales, meaning it isn’t worth the advertising budget, that could see the hype start to die off.
(This is, after all, where hype comes from. I get paid to try and generate it.)
In that world, it’s not hard to conceive tech juniors banking heavily on the concept might suffer. But we could see this Apple iPhone sale slowdown hit the ASX in some other ways – most speculative.
We could see revenues take a dent at JB Hi-FI (ASX:JBH); it’s conceivable in the world I described above that NextDC (ASX:NXT) and HMC’s data centre Digico Infrastructure REIT (ASX:DGT) could take a hit.
