Apple’s new AI-powered phones could do much more than boost iPhone sales

Artificial intelligence (AI) has opened up a whole new realm of possibilities for new products and services that Apple (AAPL 1.03%) can be launched. Its newest iPhones will have the functionality to take advantage of the company’s new AI features, which it generally refers to as “Apple Intelligence.” It’s just the catalyst the company might need to kick off a big upgrade cycle for its phones.

But an increase in iPhone sales is only part of the equation. There could be another catalyst for Apple thanks to artificial intelligence, and that’s on the service side of things.

Apple may charge a subscription fee for certain AI features

Not all AI features are created equal, and premium options may require users to pay a recurring fee for them. Many analysts believe the company could charge a fee, potentially as much as $20 per month, for premium AI features.

Apple users, they argue, have grown accustomed to paying for premium features and services through the company’s growing and vast ecosystem. New and improved AI capabilities could be part of these premium features. Chatbots, for example, such as ChatGPT, are free for users, but for people who want a premium experience, including faster and better access, that requires a subscription.

Apple Intelligence encompasses many of the types of functions that people can do with chatbots today, such as composing emails and creating images. Apple’s Siri assistant will also get an upgrade thanks to artificial intelligence. The company recently unveiled Apple Intelligence, and all of the features likely won’t be known until next year, and by then, consumers may have a better idea of ​​which ones may be free versus which may require a subscription.

Service revenue is increasingly important to Apple

Over the years, Apple has expanded its services business to include music, news, streaming, podcasts, fitness and other services. AI can enhance those existing services, but it can also be a stand-alone service, acting as an assistant for users.

Services are an important part of Apple’s business because although a user can hang on to an iPhone for years before upgrading, for services, it is always necessary to pay an ongoing subscription to ensure that there is no interruption in use.

In the company’s most recent quarter, which ended June 29, services revenue totaled $24.2 billion and rose 14% year-over-year. That’s a much higher growth rate than the modest 2 percent growth the company experienced in product sales, which totaled $61.6 billion. Today, services revenue accounts for 28% of Apple’s top line. Five years ago, the company’s quarterly revenue from services was just $11.5 billion and accounted for 21% of all revenue.

The service business has become much more important to Apple in recent years, and AI may accelerate its growth in the near future.

Is Apple stock a good buy?

Apple shares recently fell on news that billionaire investor Warren Buffett sold shares in the company. And while that may sound alarming, it’s not a reason for investors to worry, and it certainly doesn’t change the investment thesis behind buying Apple stock.

At more than 30 times earnings, Apple isn’t a cheap stock to own, but with a strong customer base and the potential for AI to transform and accelerate its business, now may be as good a time as any to add the stock to your portfolio. There could be not just one, but several catalysts coming for the business thanks to artificial intelligence, and as long as you’re willing to hang on for the long haul, this can make for a great growth stock to buy today.