Apple’s Historic iPhone Sales Slump Not Biting Into AI Spend

As iPhone sales dip, Apple continues to diversity its revenue streams. Will the tech giant's big AI gamble pay off?

Despite disappointing iPhone sales contributing to Apple's biggest sales dip since 2016, faith in the company remains high, thanks to profits from digital services like Apple TV surging and stock market buzz around its pending generative AI tool, AppleGPT.

So far this fiscal year Apple has invested $22.61bn in research and development, and CEO Tim Cook announced the company is going to “continue investing and innovating” in its quarterly earnings call for Q3.

Like fellow efforts made by Meta and Amazon, the company's AI gambit is paying off. With financial experts raising concerns over big tech's “AI bubble” will Apple's recent investments be successful in the long term?

Apple's Hardware Sales Are Down, But Services Remain Strong

Apple announced its third consecutive decline in revenue in its recent earnings report, largely due to a slowdown in global iPhone, Mac, and iPad sales.

According to the report, iPhone sales – which account for almost half of the company's revenue – dropped by 2.4%, while iPad sales fell by 20%. This marks the company's biggest sales slump since 2016, when the manufacturer dealt with a similar decline in the Chinese market.

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It wasn't all bad news for Apple though, with sales of wearables like AirPods and Apple Watch jumping by 2.5% over the same period.

“The services business is important in many ways for us. It strengthens our ecosystem [and] it’s important because it makes the overall business less dependent on the performance of our products.” – Apple's Finance Chief Luca Maestri

Thanks to a recent diversification effort, revenue from Apple's services division was also up 8% YoY, and the segment is projected to grow 5.8% annually moving forward.

Apple's services now boast double the number of subscriptions they did three years ago, and paid subscriptions managed by Apple now have twice as many subscribers than Netflix, HBO, Disney+, and Peloton combined.

Apple Doubles Down on AI Spending

Aside from ramping up spending on services like Apple Music and AppleTV, Apple also announced it would be deepening its investment into generative AI.

According to the recent earnings call, the company spent $22.61bn on R&D in the past fiscal year – $3.12bn more than the previous year – with a sizable chunk of this going on AI development.

Compared to its big tech rivals Google and Meta, Apple was slightly late to cash into the AI boom, but Tim Cook attests that the technology is “integral to virtually everything that (they) build” and that the company is committed to investing in its development going forwards.

“Obviously, we’re investing a lot (on AI), and it is showing up in the R&D spending that you’re looking at.” – Tim Cook, Apple CEO

Fortunately, this risk appears to be paying off. After news broke that the manufacturer was developing its own generative AI chatbot, known internally as AppleGPT, the company's stock price soared by 2.3%, adding $71 billion to its market cap.

However, despite the promising stock market buzz that Apple's AI projects are attracting, the company is yet to announce a release date for AppleGPT, or make any real returns on its sizable investments.

Will Apple's AI Gamble Pay Off?

Big tech's recent economic challenges have forced major players to tighten their belts, as evidenced by the seemingly unstoppable wave of tech industry layoffs this year. Still, this hasn't stopped companies like Apple, Meta, and Google from pouring billions into AI developments.

For many, this approach is paying off. Meta's share price recently surged by 8% after the success of its AI-powered Instagram Reels platform, and Amazon's recent's earnings beat market expectations thanks to a series of successful AI initiatives launched by the ecommerce retailer.

This isn't to say this strategy is foolproof, however. Strategists at JPMorgan Chase have recently expressed concerns over big tech's AI bubble, explaining that while hype around the technology is sending stock prices through the roof, concrete evidence of its success remains lacking.

One thing remains certain: while Apple is yet to report any major returns from its AI investments, being left behind in the race for AI dominance could prove to be an even bigger risk.

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Written by:

Isobel O'Sullivan (BSc) is a senior writer at with over four years of experience covering business and technology news. Since studying Digital Anthropology at University College London (UCL), she’s been a regular contributor to Market Finance’s blog and has also worked as a freelance tech researcher. Isobel’s always up to date with the topics in employment and data security and has a specialist focus on POS and VoIP systems.

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