17.06.2024 Issuer Call Redemption Notice

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Sandeep Rao


Apple WWDC 2024: OpenAI Transformation?

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Apple’s 2024 Worldwide Developers Conference (WWDC) is currently underway and all eyes rest on the company’s announcements to discern if new edges are being carved into its devices and services. There is ample good reason for this: as it stands, the company’s growth is showing signs of stagnation.

Trend Analysis

Relative to past full Financial Years (“FYs” which end in September), the first six months of the company’s current Financial Year might seem to some as being positive.

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Source: Company Information; Leverage Shares analysis

If current trends continue, net sales would end about 10-20% above that seen in FY 2023. Cost of sales are expected to rise by a nearly commensurate amount, as so do both Net Income as well as diluted Earnings Per Share (EPS). This is a welcome change from Year-on-Year (YoY) trends in the past year, which was in a downtrend, but nowhere close to the massive boost in virtually every key line item seen in FY 2021.

When considering the distribution of key line items between products and services, signs of stagnation become a little more apparent.

Source: Company Information; Leverage Shares analysis

Apple’s products and services have maintained an 80:20 split in revenues fairly consistently over the past four FYs and seem poised to do so in the current year as well. This consistency is also reflected in the 90:10 split in the cost of sales. Since FY 2023, R&D expenses have been trending around 5% higher than before and this seems to continue into the current FY as well (at least, so far).

An important risk factor is seen in the geographical distribution of sales. In FY 2020, the Americas accounted for almost half of all sales. This has steadily been whittled down to the 40% mark while China has become increasingly more important for the company at the 25% contribution mark. Given that China is reportedly under increasing economic stress that’s beginning to affect personal consumption, this might be considered a weakness. However, similar headwinds have raised likelihoods of a similar risk in the U.S. and Western Europe as well.

iPhone sales have become increasingly more important for the company’s bottomline by going from 62% to 69% in the first half of the company’s current FY. Contributions from Mac and iPad sales have steadily declined in importance while wearables and home electronics have held steady. The data suggests that the correlation between iPhone purchases and “upsells” in wearables and accessories is holding strong. However, the company is steadily transitioning from an American “tech” company into an American “smartphone” company.

Another factor that has remained fairly strong over the past few years is that unit sales have a slight downtrend. Rising sales in dollar terms is largely attributable to new models being consistently priced above previous models. This creates a limitation in the company’s total addressable market without really paring down the competition: iPhones often find themselves compared rather unfavourably against similar products from Samsung and Google’s Pixel division in terms of performance and features. What prevents a further slide in unit sales is the company’s strong recognition as a “premium” brand. While this might coax devoted brand fans into staying on, it doesn’t translate very well into converting new customers.

This is where Apple’s annual WWDC events becomes key. This year’s WWDC started on the 10th of June and will run till the 14th.

WWDC So Far and Expectations

On the first day of this year’s WWDC, the new features unveiled could best be described as “interesting” to Apple’s fans and “run of the mill” for those not particularly invested into Apple products: Apple’s operating system iOS 18 – expected to debut in Fall this year – promises a host of aesthetic improvements. Various upgrades in the operating systems for the company’s Mac, iPad, smartwatch, headset and TV also promise a host of software-driven user experience and ease enhancements. Overall, these features tend to close the gap with Android- and Windows-driven devices (which also tend to be cheaper) without necessarily surpassing the best-in-class on all fronts.

Day 1 of Apple’s WWDC 2024 also was the momentous announcement of Apple Intelligence, a suite of AI-enabled services designed to improve user experience in letter drafting, generating art and so forth. The generative AI aspect of image creation isn’t expected to surpass Midjourney but will likely be in direct competition with Meta’s MetaAI. A large portion of this upgrade has been made possible by a partnership with OpenAI whose GPT-4o (launched in May) was essentially meant to demonstrate how ChatGPT could be integrated with Siri1. ChatGPT functionality is expected to increase in depth and service offering as time passes.

A common theme that’s visible so far is the company’s singular focus on individual consumers, which is a potential weakness. In the world of consumer electronics, it’s a buyer’s market and consumers are spoilt for choice along cost, features and even performance. As previous articles about Nvidia2 and AMD3 indicated, Apple’s fellow tech peers essentially transformed their bottomlines by increasingly orienting towards corporate spends on datacenters. For the past several years, Apple has reportedly been working with Taiwan’s TSMC – the foundry partner for both Nvidia and AMD – to develop its own chips under “Project ACDC”4 that would be designed to run artificial intelligence software in datacenter servers. While there isn’t any substantial indication that there will be an unveiling or update on Project ACDC in WWDC 2024, the deployment of corporate solutions would be a game changer for the company’s prospects and forward outlook.

All in all, WWDC 2024 so far has been interesting in highlighting Apple’s continued evolution but it doesn’t really showcase any substantial shift in company strategy. While the new M4 chip expected to be deployed in its upcoming devices is better suited for a number of AI-related tasks by users – particularly in the iPad’s OS – this also means that the unit price can be expected to inch even higher. A higher price implies fewer units sold while largely holding net revenues at a net positive. This positive is, however, a false positive; widespread inroads into the AI space cannot be expected without substantial hardware announcements and a change in strategy. Despite the presently-low likelihood, it will be a massive deal if any substantial announcements about “Project ACDC” were made by Apple in the course of this year’s conference.

Professional investors interested in making a tactical play on Apple’s stock trajectory can consider AAP3 or AAPS, which offer leveraged daily-rebalanced exposure to the upside and downside of the stock’s trajectory respectively.


  1. “Apple is putting ChatGPT in Siri for free later this year”, TheVerge, 11 June 2024
  2. “Nvidia Q1 Earnings: Data Center Surge, Rising Risk”, Leverage Shares, 27 May 2024
  3. “Can AMD Hit $1 Trillion Market Capitalization?”, Leverage Shares, 5 June 2024
  4. “Apple Is Developing AI Chips for Data Centers, Seeking Edge in Arms Race”, Wall Street Journal, 6 May 2024

Your capital is at risk if you invest. You could lose all your investment. Please see the full risk warning here.

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