Apple's initial AI features 'may be more modest than bulls may be hoping for'

Investing.com -- The initial AI features that Apple (NASDAQ:AAPL ) is expected to launch in April "may be more modest than bulls may be hoping for,” Bernstein analysts said in a Thursday note. They believe it will take time for smartphone makers to develop AI capabilities that drive significant user adoption.

Apple’s upcoming iOS 18.4 is expected to introduce "intelligent agents" designed to blend personal information and agentic capabilities to enhance AI utility.

Features such as on-screen integration, app connectivity, and personal context are slated to launch, representing a notable advancement over the more basic updates in iOS 18.2.

However, Bernstein analysts caution that agentic AI has proven challenging across the industry, with success rates for state-of-the-art models remaining low at just 22-25% on benchmarks.

Hardware limitations, including the iPhone 16’s 8GB of RAM, further constrain Apple’s ability to deliver seamless multi-step functionalities.

“The industry and Apple are working on improving agency, and Apple’s App Intents framework appears designed in part to constrain complex, multi-step agentic features to mitigate hallucination risk,” analysts led by Toni Sacconaghi wrote.

“While this could help improve success rates, it increases the risk that AI functionality underwhelms at first, especially for investors (and users) who have higher expectations.”

On the positive side, Apple benefits from stronger access to user data compared to Android competitors, enabling the potential for more personalized AI experiences.

Its level playing field with third-party app developers in data-sharing negotiations further supports this advantage. Still, challenges persist in applying personal context in ways that are both impactful and reliable, with errors and hallucinations remaining a concern.

Overall, analysts think that “the initial agentic features that Apple will debut in April may be more modest than bulls may be hoping for, and that it may take time for smartphone vendors to develop compelling features that see strong adoption.”

As such, the investment firm does not expect a significant inflection in iPhone 16 later this year, although they continue to believe that iPhone 17 will kick-off a strong cycle due to “enhanced AI capability and a form factor change.”

Source: Investing.com