Tech sector analysts have Apple's (AAPL 0.04%) Worldwide Developers Conference (WWDC) circled on their calendar every year. That's because the tech giant often takes advantage of that event to announce important news that will be relevant to its financial and stock performance. That was certainly the case this year. On Monday, the first day of WWDC, management finally made public its much-anticipated plans related to artificial intelligence (AI).
The stock jumped Tuesday due to this news. But is what the company revealed a good enough reason to buy Apple stock?
A brief look at Apple's AI plans
Apple dubbed the AI overhaul of its devices "Apple Intelligence." It will integrate AI capabilities into the next iteration of its mobile operating system, iOS 18, a change that will affect many functionalities of its already high-performing devices. It's worth pointing out that those AI features will only be available on the latest versions of the iPhone (15 Pro and 15 Pro Max), and some iPads and Macs with the required capabilities. But what exactly are these features? There are too many to talk about in detail here, so let's mention just a few.
One notable upgrade will allow users to access ChatGPT for free without creating an account through Apple's famous digital assistant, Siri. Elsewhere, its AI-powered writing assistant will help polish people's writing. Other AI tools will be involved in creating and editing images, searching for specific moments in videos, reading summaries of email messages without opening them, providing summaries of video calls, and much, much more.
These tools will completely transform the way people use Apple devices, hopefully for the better. But what do they mean for investors?
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Focus on the bigger picture
All these nifty AI tools will be integrated into Apple's operating systems, so they'll be free to their users. How exactly will that help Apple, especially since few of them -- arguably, none of them -- are tools original or unique to Apple?
As just one example, its new writing assistant sounds a lot like one made by Grammarly. But unlike Grammarly, Apple has 2 billion devices in active use worldwide. The tech giant's loyal base of customers -- at least those with the right devices -- will automatically have access to these tools. That will make competing platforms that perform similar tasks less attractive -- particularly those platforms that people need to pay to use.
In other words, Apple's AI overhaul helps strengthen its ecosystem, making it more appealing to those already in it and to those on the outside looking in. It may also incentivize existing Apple customers to upgrade, since only those with new enough devices will have access to these tools. Many people won't see a need to shell out for a new iPhone to get a crack at some AI features, but some almost certainly will. It will be interesting to see whether sales of Apple's latest iPhones experience an AI-related boom.
The bigger picture, though, is that Apple's massive customer base grants it a powerful competitive advantage, and anything that makes this ecosystem stronger and stickier is good for its long-term prospects. Apple knows that its future lies in its services segment, the success of which largely depends on its installed base of devices. The services unit has generally grown at a faster rate than the rest of the business for a while now, and its most recently reported quarter was no different.
During its fiscal 2024 second quarter, which ended March 30, Apple's revenue dropped 4% year over year to $90.8 billion. But services revenue rose by about 14% to $23.9 billion -- an all-time record for the company.
This fast-growing high-margin segment will, eventually, have a massive impact on Apple's profits. The advent of Apple Intelligence helps the company move closer to that eventuality. That makes it an excellent reason to buy this tech stock.
