Apple to ‘Significantly’ Invest in AI, Warns of $1 Billion Tariff Hit

Apple is lighting a fire under its artificial intelligence (AI) efforts, pledging to “significantly” step up investments and dedicating more staff toward the development of Apple Intelligence features.

During its fiscal third-quarter earnings conference call with analysts on Thursday (July 31), CEO Tim Cook said that the company is making “good progress” on infusing more AI capabilities in Siri, which are set to come in 2026.

The goal is to develop a “more personalized” Siri and for AI features in iOS to be “deeply personal, private and seamlessly integrated,” Cook said. Features such as live translation and “workout buddies” are coming soon.

“We are significantly growing our investments in AI,” Cook said, just as the company did in the fiscal second quarter and will likely also do so in Q4.

The investments might include acquiring companies. “We’re very open to M&A that accelerates our roadmap,” Cook noted.

Apple reportedly is interested in acquiring Perplexity AI, which is an AI-powered search engine that also offers shopping and payments services.

Cook did not confirm nor deny the rumor, only saying that Apple has acquired seven companies this year thus far, most of them smaller firms, and is not opposed to buying bigger companies.

“We’re putting all of our energy behind it,” Cook said, adding that Apple is “reallocating a fair number of people” to focus on developing AI features.

However, Bank of America analysts are more cautiously optimistic.

“Apple is likely 3+ years away from delivering a truly modern AI assistant, long after Google and others have integrated such tech,” Bank of America wrote in a research note shared with PYMNTS. “While the company is famous for not rushing features to market until they’re ready, the pace of AI development externally (by its rivals) is blistering; Apple’s slow timeline could leave it far behind in user expectations.”

Cook said Apple has earmarked $500 billion to invest in the U.S. over four years, which includes opening chip manufacturing plants. It has 24 semiconductor manufacturing plants in 12 states. In August, Apple is opening the Apple Manufacturing Academy in Detroit to train workers.

See also: Investors Grow Impatient With Apple’s AI Efforts

As for tariff headwinds, Cook said Apple posted increased costs of $800 million in the quarter due to tariffs and expects $1.1 billion in the fourth quarter, assuming the tariff policy and macroeconomic situation don’t change. The higher hit on tariffs in the next quarter is due to higher sales volumes of its products more than anything else, the company said.

Cook said the bulk of the tariffs for the last quarter were related to IEEPA sanctions on imports from China, which President Donald Trump invoked earlier this year. IEEPA sanctions are typically used to address national security threats from foreign adversaries.

Cook said the “vast majority” of Apple’s products fall under the separate but similar Section 232, which lets the president impose or negotiate import restrictions with other nations in the interest of national security.

However, for iPhones sold in the U.S., the “majority” is made in India, Cook said. As for the Mac, iPad and Apple Watch sold to American consumers, the “vast majority” is made in Vietnam. China is the source for the “vast majority” of Apple products sold outside the U.S., Cook added.

Asked if the iPhone would lose relevance in the AI era as other companies are devising the next generation of consumer devices, Cook said he sees other devices complementing the smartphone, not replacing it, since it does so much: phone, computer, gaming device, calendar and more.

“It’s difficult to see a world where iPhones are not living in it,” Cook said.

Notably, OpenAI has acquired the AI devices startup of Jony Ive, Apple’s former designer who worked with founder Steve Jobs to design many of the company’s iconic products. OpenAI and Ive plan to develop an AI device that will more naturally interact with people.

Cook said that doesn’t mean Apple is not considering developing other form factors as well. He did not disclose any more details.

As for wearables, Cook said Apple is getting ready to ship Vision OS 26 for the Apple Vision Pro AR headset. “This is a scenario we really believe in,” Cook said. Apple is reportedly planning to develop smart glasses, but Cook did not address the rumor.

In the third quarter, Apple reported a net income of $23.4 billion, or $1.57 per share, compared with $21.4 billion, $1.40 per share, in the like period a year ago. Revenue came to $94 billion, up 9.6% from $85.8 billion. Analysts expected Apple to earn $1.43 per share in the quarter on revenue of $89.2 billion, according to S&P Global Market Intelligence.

The company said iPhone revenues rose by 13% to $44.6 billion, which is a record, driven by upgrades to iPhone 16, with double-digit growth in Europe, Greater China and Asia-Pacific. Mac revenues rose by 15% to $8 billion while iPad sales fell 8% to $6.6 billion. The wearables, home and accessories category, which includes Apple Watch, fell 9% to $7.4 billion. Services revenue was up 13% to $27.4 billion.

Shares of Apple were up 4% to $211.60 in after-hours trading.

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