Apple's F1 Success & AI Concerns

Apple had two major launches last month that were very different. First, Apple revealed AI advancements it had been working on when it released developer versions of its operating systems at WWDC. Then, Apple's first blockbuster movie, “F1,” debuted to over $155 million with positive reviews in its first weekend.

“F1” highlighted the company’s long-term outlook, the growth of its services business, and its ability to tap into culture. Wall Street’s reaction to the AI announcements at WWDC suggests there’s some trouble.

F1: A Victory Lap

“F1” showed Apple's ability to invest in new, long-term projects. When Apple TV+ launched in 2019, it had a few original shows and one movie. Despite Apple TV+ being written off as a costly side-project, Apple continued its plan, expanding its staff and operation in Culver City, California. That allowed the company to build Hollywood connections and an entertainment track record. Now, an Apple Original can lead the box office on a summer weekend.

The success of “F1” also highlights Apple’s marketing and ability to get talent to appear with its leadership. Apple used its Wallet app to send a push notification with a discount for tickets. Cook appeared with Brad Pitt at an Apple store in New York and posted a video with F1 racer Lewis Hamilton.

Although Apple services chief Eddy Cue said Apple needs its film business to be profitable, “F1″ isn’t just about the bottom line. Apple’s Hollywood productions are the face of the company’s services business, which has been an investor favorite since 2016. Films will only ever be a small fraction of the services unit, which also includes payments, iCloud subscriptions, magazine bundles, Apple Music, game bundles, warranties, digital payment fees and ad sales. The company does over $1 billion in sales on average every day. The success of “F1” means that Apple could do more big films in the future.

Comscore senior media analyst Paul Dergarabedian said that success inspires future investment.

AI Struggles

If “F1” is a sign that Apple’s services business is in full throttle, the company’s AI struggles are a warning. At WWDC last month, Wall Street was eager to hear about Apple Intelligence, its suite of AI features first revealed in 2024. Apple Intelligence, a key tenet of the company’s hardware products, had a rollout marred by delays and underwhelming features. Apple spent most of WWDC going over smaller machine learning features, but did not reveal what investors and consumers want: a sophisticated Siri. The expectation of AI assistants among consumers is growing beyond simple questions.

The company previewed an improved Siri in the summer of 2024, but earlier this year, those features were delayed to sometime in 2026. At WWDC, Apple didn’t offer any updates beyond that the company was “continuing its work to deliver” the features in the “coming year.” Some observers reduced their expectations for Apple’s AI after the conference.

Jefferies analysts wrote that current expectations for Apple Intelligence to kickstart a super upgrade cycle are too high. Siri beat nearly every other voice assistant to market when it debuted on iPhones in 2011. Siri remains essentially the same system that struggles with open-ended questions, even after the invention of voice bots based on generative AI technology. Google has done way more to integrate AI assistants into their devices than Apple has. Google doesn’t have the same reflex against collecting data and cloud processing as Apple.

Some analysts believe Apple has a few years before its lack of competitive AI features will start to show up in device sales. Apple’s former design guru Jony Ive is now working on new hardware with OpenAI, increasing pressure. Needham senior internet analyst Laura Martinsaidon CNBC this week that Android is racing ahead.

Apple’s services success with projects like “F1” is an example of what the company can do when it sets goals and executes them. Its AI strategy could use a similar long-term plan. Wall Street’s anxiety over Apple’s AI struggles was evident after Bloomberg reported that Apple was considering replacing Siri’s engine with Anthropic or OpenAI’s technology. The move would contradict one of Apple’s strategies: Apple wants to own its core technologies, not buy them from suppliers. Using external technology would be an admission that Apple Foundation Models aren’t good enough for what the company wants to do with Siri.

Martin said that Apple has fallen behind and needs to supercharge their generative AI efforts. Apple might even pay billions for the use of Anthropic’s AI software, according to the Bloombergreport. If Apple were to pay for AI, it would be a reversal from deals, like the search deal with Alphabet where Apple gets paid $20 billion per year to push iPhone traffic to Google Search. The company didn’t confirm the report, but Wall Street welcomed the report and Apple shares rose.

The AI Race

OpenAI CEO Sam Altman said that signing bonuses for AI engineers can range up to $100 million. Martin said she can’t see Apple doing that. Meta CEO Mark Zuckerberg sent a memo about hiring AI experts from companies such as OpenAI, Anthropic, and Google’s DeepMind. Zuckerberg hired Scale AI CEO Alexandr Wang to lead a new AI division as part of a $14.3 billion deal. Other companies have spent hundreds of millions on AI celebrities. Apple hasn’t announced any big AI hires in recent years.

While Cook rubs shoulders with Pitt, the race may be passing Apple by.