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Apple Faces Mounting Challenges Ahead of WWDC: AI Lag, Tariffs, and Legal Risks

by Team Lumida
June 6, 2025
in AI
Reading Time: 5 mins read
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Can Apple’s Vision Pro Bounce Back with a Budget-Friendly Model?

"Apple Vision Pro on display" by Seasider53 is licensed under CC BY 4.0

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Key Takeaways:

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  • Apple’s stock has dropped 20% year-to-date, marking its worst pre-WWDC performance since 2010, as investors grow concerned about the company’s slow progress in AI and other challenges.
  • The company’s AI initiatives, including the Apple Intelligence service and Siri’s AI upgrade, remain behind schedule, leaving Apple trailing competitors like Google, Microsoft, and Amazon.
  • Tariffs threaten Apple’s hardware profit margins, while U.S. government pressure to shift production out of China challenges its long-standing supply chain model.
  • Legal risks loom over Apple’s services business, including potential reductions in App Store fees and the loss of Google’s payments for default search engine placement, which together drive significant revenue.

What Happened?

Apple is heading into its Worldwide Developers Conference (WWDC) amid a series of challenges that have weighed on its stock and investor sentiment. The company’s slow progress in artificial intelligence has drawn criticism, with its Apple Intelligence service still in development and Siri’s AI upgrade delayed. Unlike competitors, Apple has not positioned its AI offerings as premium, revenue-generating services, further highlighting its lag in the AI race.

Beyond AI, Apple faces significant external pressures. Tariffs on imported components threaten to erode hardware profit margins, while the U.S. government is pressuring the company to shift production out of China, disrupting its two-decade-old supply chain model.

Apple’s services business, which boasts gross profit margins of 74%, is also under threat. Legal challenges to App Store fees and Google’s payments for default search engine placement could significantly impact revenue. These services have been critical to offsetting flat growth in Apple’s flagship iPhone business, which has seen little revenue growth over the past two years.


Why It Matters?

Apple’s challenges highlight the growing complexity of maintaining its dominance in the tech industry. While the company has a loyal customer base of over 2.35 billion active devices, its slow start in AI and reliance on external factors like tariffs and legal rulings could hinder its ability to innovate and grow.

The lack of a clear catalyst for an iPhone replacement cycle further compounds concerns. With Wall Street projecting only 3% iPhone revenue growth in fiscal 2026, Apple must find new ways to drive device sales and upgrades. Meanwhile, competitors like OpenAI are exploring disruptive new devices, such as AI companions, that could challenge Apple’s dominance in consumer tech.

Apple’s ability to navigate these challenges while maintaining its reputation for innovation will be critical to its long-term success.


What’s Next?

Apple’s WWDC will be closely watched for any surprises, particularly in AI, as the company seeks to reassure investors and customers. However, the company must also address broader challenges, including managing its global supply chain, mitigating tariff impacts, and navigating legal risks to its services business.

The outcome of legal challenges to App Store fees and Google payments could have far-reaching implications for Apple’s services revenue. Additionally, the company’s ability to adapt to potential disruptions in the smartphone market, such as the rise of AI-powered devices, will be critical in maintaining its competitive edge.

Investors will look for signs of progress in AI and other growth areas, as well as Apple’s strategy for mitigating external risks.

Source
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Lumida's website (referred to herein as the "Website") is limited to the dissemination of general information pertaining to its advisory services, together with access to additional investment-related information, publications, and links. Accordingly, the publication of the Website on the Internet should not be construed by any client and/or prospective client Lumida’s solicitation to effect, or attempt to effect transactions in securities, or the rendering of personalized investment advice for compensation, over the Internet.

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‍Lead Capture Forms: By submitting your contact information in the forms on this site, you are not obligated to invest in Lumida's product or services.
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