Apple Risks Falling Behind in the AI Race as Rivals Push Ahead

While investors worry about tariffs impacting Apple’s hardware-driven business, a more pressing threat may be going unnoticed: Apple’s slow progress in artificial intelligence. As rivals rapidly innovate, Apple’s lack of AI infrastructure could put its dominance at risk.

AI tools are already transforming smartphones. In March alone, ChatGPT’s mobile app was downloaded 64.3 million times globally—up from just 4.3 million a year earlier, according to Statista. But app downloads are only the first step in what experts say is a deeper AI integration process.

According to analysts at TD Cowen, the future of AI on mobile devices involves four stages: from basic apps, to integration in native tools like search and voice assistants, and ultimately embedding AI into the operating system itself. Apple, they say, is behind in the latter two stages.

Currently, Apple Intelligence—Apple’s AI suite—isn’t yet meeting user expectations. And as AI models become more powerful, they’ll demand stronger hardware. TD Cowen estimates that newer AI tools could boost smartphone power consumption by over 30%, meaning major hardware upgrades will be needed. That’s an expensive challenge for Apple, which has yet to fully prepare.

More critically, Apple lacks the data center infrastructure needed to run these advanced models. Competitors like Alphabet (Google) and Meta have already made massive investments in this space. Ted Mortonson, technology strategist at Baird, warns that without its own robust AI infrastructure, Apple could lose its competitive edge.

“Apple’s OS is excellent for yesterday’s world,” Mortonson said. “But that won’t be enough in a future dominated by generative AI.”

New challengers are emerging too. OpenAI CEO Sam Altman and former Apple design chief Jony Ive are building AI-native devices through a newly acquired startup. Their goal: develop a new class of products designed entirely around AI. If successful, they could pose a direct threat to Apple’s iPhone dominance.

Apple’s dependence on outside AI providers like OpenAI adds another layer of vulnerability. If those companies build their own hardware—like Google has with its Pixel phones or Meta with Ray-Ban smart glasses—Apple could struggle to keep users in its ecosystem.

Mortonson also pointed to changing consumer behavior, especially among younger buyers who may opt for more AI-centric devices from other brands. Influencers switching to Android or AI-powered alternatives could signal a shift in loyalty.

This poses a broader risk for Apple. About 72% of its revenue comes from hardware, with iPhones alone making up 49%. But its services business, which includes subscriptions and cloud storage, is also tied to hardware sales. If users abandon iPhones, both revenue streams could suffer.

TD Cowen analysts outlined three key actions Apple could take to regain ground:

1. Launch a gen-AI developer kit to enable app makers to connect to Apple Intelligence.
2. Advance its AI models to compete with leading alternatives like Meta’s Llama 4 Scout.
3. Acquire a major AI company to quickly bolster its capabilities and infrastructure.

If Apple meets these milestones, TD Cowen estimates its stock could rise to $275. If not, it could fall to $160. The stock recently closed near $203 and is down 19% for the year—lagging behind other Big Tech names.

Mortonson believes Apple is currently overpriced, trading at 26 times forward earnings with a projected two-year sales growth of just 5.8%. In comparison, Alphabet trades at 17.7 times earnings with expected growth of 10.6%.

In short, Apple’s historical strengths—design, stability, and integration—may not be enough in the new AI-driven tech landscape. To stay competitive, it will need to move faster, invest more, and start leading—not following—on AI.