Can artificial intelligence help Apple sell more iPhones? This question will be answered at tonight's annual fall product launch event by Apple (AAPL.O), where the company will unveil the new generation iPhone.

It is expected that the iPhone 16 series will not have many new hardware features, except for the usual faster chips and better cameras. Instead, Apple will focus on promoting its new AI feature "Apple Intelligence" as the main selling point.

In terms of products,

At tonight's launch event, Apple is expected to announce four new models of the iPhone 16: Pro, Pro Max, Plus, and the base model.

For fans of the Pro models, Apple may plan to increase the screen size, according to Bank of America analyst Wamsi Mohan. The current version has a screen size of 6.1 inches, but it may increase to 6.3 inches this year.

He also predicts that this year's design improvements include "narrower display bezels, improved thermal management, and new colors".

But software is increasingly taking the lead in Apple's performance, and investors may see a preview of AI features showcased at the Worldwide Developers Conference (WWDC) in June this year. It's worth noting that users of the iPhone 15 Pro series can also use these features, but users of other older models would need to upgrade to experience them.

"We expect the event to focus on AI integration and enhanced Siri functionality, including better integration with apps and an updated interface," wrote analyst Mohan. "Apple may also showcase its integration with ChatGPT to handle more general queries."

The day's announcement may not just be about the iPhone, as Apple may also showcase new Apple Watch Series 10 and Ultra 3 devices.

As for pricing,

Last year, Apple effectively raised the base price of the Pro Max version by canceling the lowest storage configuration, but the overall price has remained unchanged for years. Last year, many on Wall Street anticipated a broader price increase strategy. Is raising prices a good idea this year?

Piper Sandler analyst Matt Farrell is skeptical about this. In a recent preview, he wrote, "From our perspective, any price increase could be seen as a negative impact on a potential 'super cycle.'"

Apple will have to address some competing considerations when determining its pricing strategy. He pointed out that internal hardware upgrades needed to support more powerful AI capabilities may require consumers to pay higher prices. But at the same time, "there are also indications that consumers' disposable income may be starting to weaken."

Stock Performance

During iPhone launch events, investors typically "sell" stocks. But according to Mohan of Bank of America, this year's situation may be different.

"In previous events, the stock fell after the conference but recovered within 30-60 days after the conference," he wrote. "If Apple showcases impressive demonstrations in Apple Intelligence or third-party integrations, or if the prices increase, we may see better stock performance compared to previous conferences."

When Apple launched the first generation of iPhone, the stock price rose by 8.3% on that day, but other than that, the price fluctuations are usually moderate. On the iPhone release day last year, the Apple stock declined by 1.7%. Historical data shows that the average return rate on the release day for Apple is 0.3%.

So far, consumers have not considered AI features as the main reason for upgrading. Samsung, one of Apple's main competitors, heavily promoted the AI features of its latest devices, but according to a survey conducted by BayStreet Research in US carrier stores, AI only played a secondary role in initial sales.

Another survey shows that only 7% of consumers expressed a strong willingness to purchase AI-based smartphones, according to market research company Canalys' data.

"AI has not resonated with the masses," said Cliff Maldonado, Chief Analyst at BayStreet Research, who studies the smartphone market.

Nevertheless, some investors expect Apple's iPhone sales to increase significantly regardless, as many iPhone users are in the upgrade cycle. Analysts predict that Apple's iPhone revenue for the 2025 fiscal year (ending in September next year) will grow by nearly 5%, according to FactSet's forecast.

The demand for Apple's AI smartphones will be another test for market acceptance of this technology. Apple's competitors have already invested billions of dollars in developing AI models that can engage in human-like conversations, write articles, and generate images and animations. However, investor interest in AI spending this year has weakened as many companies have not demonstrated a clear path to profitability.

Compared to its competitors, Apple has not invested a huge amount of money in the field of AI. Instead, Apple aims to participate in this market by establishing partnerships with the most advanced AI companies.

"Apple is building its growth engine through collaboration rather than reinvention," said Trip Miller, a shareholder of Apple and managing partner of Gullane Capital Partners. "They already have a platform and a user base willing to consume this revolutionary technology."

Apple announced many new AI features at the June developer conference. Apple Intelligence is the company's system integrating generative AI capabilities into various applications on the iPhone.

The new AI system will be compatible with the latest and previous generation iPhone 15 Pro, with enhanced Siri voice assistant, customizable emoji creation, and text message generation capabilities.

Through Apple Intelligence, Apple is also partnering with OpenAI to embed ChatGPT, considered a leading force in the current generative AI field. Apple plans to collaborate with other AI developers, with recent reports from The Wall Street Journal suggesting that Apple is in talks to invest in OpenAI.

However, many of Apple's new AI features will not be immediately available at the launch of the new phone. Some of the more notable features are expected to be released at an unspecified time next year. Initially, these new features are anticipated to only support English. These limitations and delays could further hinder the word-of-mouth spread of AI capabilities.

Apple's last major iPhone sales boom was in 2021, with sales increasing by 39% from the previous year. However, in the last two quarters, Apple's sales have declined year-on-year, with revenue declining by over 2% in the fiscal year ending in September 2023.

The 2021 sales frenzy was mainly driven by promotions and upgrade subsidies from wireless carriers. These companies helped pay for the new generation of faster 5G phones to attract new users or retain existing ones, having previously invested billions of dollars in upgrading the new network infrastructure.

In the USA, carriers play a significant role in new iPhone purchases, accounting for about three-quarters of all new iPhone sales in the country. Although upgrade incentives still exist, with the recent lack of significant design and feature updates in the new generation iPhones, some iPhone users have postponed their upgrades.

Some analysts predict that iPhone growth will make a strong comeback in the next generation iPhone 17, which will introduce a brand new, thinner phone design and updated camera design. By then, more consumers may also be more willing to embrace AI functionality.