Apple fails to clear a low bar on AI

The company wrapped the opening keynote of its annual developers’ conference on Monday with no major surprises about its AI efforts. A program to allow developers to access its “foundation models" was widely expected and could—over time—result in AI apps that work more easily on Apple’s devices.

But the bulk of the event was focused on updates to Apple’s existing operating systems for its devices. This includes a design enhancement for the look of its software called “liquid glass." Apple’s share price, down 19% already this year, slipped further on Monday following the keynote. “Many of the AI features announced were more incremental in our view, and already available through competitor applications," UBS analyst David Vogt wrote in a report following the event.

Apple no doubt wanted to avoid the trap it fell into last year, when it introduced its Apple Intelligence service to great hype only to have its later launch and subsequent updates fall short of promises. A big component of that was Siri—Apple’s much-maligned digital assistant that was supposed to get a major overhaul with AI capabilities. That overhaul is still a ways out; Apple’s software-engineering head, Craig Federighi, said Monday that the company will be sharing more about Siri “in the coming year."

That means an AI-powered Siri might not be hitting the market until late 2026, or two years after the rival Google Assistant got its first major AI overhaul. And Apple is running well behind peers in AI in other ways too, due in large part to a difference in business models. Microsoft, Alphabet’s Google, Amazon and Meta Platforms can distribute AI through their massive global networks that were already designed to deliver their core business services. Apple has to distribute AI through its devices, which still account for three-quarters of its annual revenue.

The problem there is twofold. One is that so-called on-device AI hasn’t yet proved to be a major selling point for products such as PCs and smartphones. The other is that Apple’s lack of its own cloud-based AI capabilities leaves the $3 trillion company still in need of powerful allies. The company struck a deal with OpenAI last year to effectively back up its own AI capabilities, and analysts have widely been expecting similar partnerships involving other major AI services, including Google’s Gemini.

Such partnerships could enhance Apple’s AI offerings, especially since the company spends only a fraction of the capital expenditures its peers do on Nvidia chips and other AI infrastructure. But Apple’s business model needs AI to be a selling point for its devices. As Craig Moffett of MoffettNathanson said in a recent note, “an AI-driven upgrade cycle will only happen if the hardware required for AI demands an upgrade." With a cloud-based AI solution, “the most important plank of the Apple bull case is no more," Moffett wrote.

A much-smarter Siri not appearing until sometime next year means the next crop of iPhones is unlikely to get any sort of AI boost. That could leave Apple’s investors waiting until fall of 2026 to see if the company can make its mark in what might be the most significant technological development in a generation. Liquid glass won’t quench that thirst for long.

Write to Dan Gallagher at dan.gallagher@wsj.com