When Wall Street is between earnings season cycles, technology stock traders must derive excitement wherever they can find it. Apple (AAPL -0.71%) recently delivered a prime example of this as the company presented its latest and supposedly greatest wares at a closely watched tech conference.
In a time when the market's attitude toward artificial intelligence (AI) integration is "more equals better," Apple certainly gave the people what they wanted. At the same time, Apple's success in dazzling the AI-obsessed crowds may have caused investors to ignore a growing threat from the one entity that might actually be more powerful and better capitalized than Apple: the U.S. government.
Apple goes all in on AI
In case anybody didn't get the memo that Apple is now all AI, all the time, the company debuted its generative AI (gen-AI)-focused Apple Intelligence platform at this year's Worldwide Developers Conference (WWDC). To drive the point home, Craig Federighi, Apple's senior vice president of software engineering, literally said that AI "needs to be integrated into the experience you're using all the time."
Bearing out Apple's relentless AI strategy, the company unveiled a new gen-AI enhanced version of the Siri voice assistant that can understand the content on your phone's screen and utilize that knowledge to provide more personalized query responses. Moreover, Apple announced that it would integrate the ChatGPT gen-AI chatbot into iPhones and revealed a number of AI-powered features for the iOS 18 operating system, set for release this fall.
Thus, Apple hammered home the AI 24/7 message, and that's exactly what the market wanted to hear. Apple stock exploded nearly 7% higher the day after the WWDC, breaking above $200 and touching an all-time high.
Of course, the market doesn't like AI for AI's sake. Investors presumably bid up the Apple share price based on the assumption that gen-AI enhancements would boost iPhone sales.
That assumption, in turn, is based on the belief that current users would feel the need to upgrade their iPhones. D.A. Davidson analyst Gil Luria summed up this optimistic takeaway, writing, "The critical piece of information was that the functionality will only be backward compatible to iPhone 15 Pro...which means it could lead to a much-needed iPhone upgrade cycle."
Fair enough, but there's a difference between "could lead to" and "will lead to." With Apple stock already carving out a new high, investors should consider whether the market may have already priced in the assumption of a massive wave of AI-prompted iPhone upgrades.
The news that got buried
While the WWDC was front-page news in the financial press, investors might have overlooked a concurrent piece of unfavorable news for Apple. Specifically, four U.S. states -- Indiana, Massachusetts, Nevada, and Washington -- joined 15 other states and the District of Columbia in the U.S. Justice Department's antitrust lawsuit against Apple.
The lawsuit dates back to March, and it accuses Apple of, among other things, monopolizing the smartphone market via contractual restrictions on developers. Apple countered that it "faces fierce competition from well-established rivals," though one might wonder who those U.S.-based smartphone market rivals would actually be -- Alphabet's Google, perhaps? That's one, but "well-established rivals" is plural, and Apple would have to argue in court that America's smartphone is at least an oligopoly, if not a fully free market.
Such are the knock-on effects of being the king of the hill, apparently. Market dominance will inevitably attract regulatory scrutiny, and surely Apple is sufficiently capitalized to absorb the legal costs of doing business.
That said, judicious investors shouldn't simply ignore the regulatory risks, as the market evidently did the day after the WWDC. As Apple pays the unavoidable price for its smartphone market juggernaut status, investors can respond with awareness, appropriate due diligence, and position-size moderation.
