Apple shares rise as Munster flags AI lockout risk despite solid iPhone cycle
- Apple shares closed 1.29% higher at $340.97 on Monday
- Gene Munster warns users locking into Muse or Grok could sideline Siri
- Meta’s Muse passed 2.5 million downloads in its first two weeks
- iPhone 18 Pro component orders cut by 15% amid rising memory costs
- Dan Ives cites 2.5 billion active devices as Apple’s AI toll collector advantage
*this image is generated using AI for illustrative purposes only.
Apple Inc. shares closed 1.29% higher on Monday at $340.97, gaining 0.11% in extended trading to $341.34. This recovery follows earlier declines driven by component order cuts and analyst Gene Munster’s new warning that the company faces a critical risk in the artificial intelligence sector.
Munster, managing partner at Deepwater Asset Management, stated that Apple can continue selling millions of iPhones yet still lose the AI game if users settle into rival assistants like Meta Platforms Inc.’s Muse or SpaceX’s Grokbot first. He emphasized that once users connect their lives to an AI, set up workflows, and begin paying $20 or more monthly, switching to Siri becomes significantly harder.
AI services versus hardware dominance
The core of Munster’s concern is not device sales but the services upside. He argued that if users lock into competing platforms first, Apple risks being boxed out of the recurring revenue stream associated with premium AI subscriptions. Doug Clinton, a fellow managing partner at Deepwater, noted that the bigger risk is to the upside case for Siri rather than the device ecosystem itself, suggesting Apple needs more urgency because a window for dominance is closing.
Meta launched Muse last month as an agent capable of opening browsers, filling forms, and continuing tasks after the app closes. It surpassed 2.5 million downloads in its first two weeks. Bank of America Securities analyst Wamsi Mohan pointed out that while Apple shipped a rebuilt Siri with iOS 27 built on custom Google Gemini models, it still lacks persistent background tasks, third-party action coverage, and a payment rail comparable to Muse’s level.
Counterpoints on ecosystem strength
Despite these concerns, Dan Ives of Yorkville Ives argued that Apple does not need the best AI model to succeed. He described Apple as "the toll collector on the consumer AI highway," citing its more than 2.5 billion active devices as a structural advantage that ensures it captures value regardless of which specific AI assistant users prefer.
This view contrasts with Mohan’s assessment that Apple could keep every handset sale but still lose discovery, referral, and transaction initiation capabilities to competitors with superior agentic features.
iPhone 18 cycle and historical context
Earlier reports indicated component order cuts for the iPhone 18 Pro and Pro Max by at least 15% due to weaker demand. However, Munster characterized the launch cycle as "off to a solid start," noting that while lead times for the iPhone 18 Pro dropped 31% year over year, early sales in China rose 12% in the first three days.
| Metric | Value | Context |
|---|---|---|
| Stock Price (Monday) | $340.97 | Up 1.29% during regular trading |
| After-Hours Price | $341.34 | Up 0.11% |
| 52-Week High | $345.34 | Current price is near this level |
| 12-Month Gain | 32.3% | Outpaced S&P 500's 16.0% gain |
Bespoke Investment Group labeled previous stock drops following similar order cut reports as "Here We Go Again," highlighting that such narratives have emerged annually without altering Apple's long-term growth path. To illustrate this resilience, Apple closed at $141.50 at the end of September 2021, coinciding with the iPhone 13 launch. As of Monday, the stock traded at approximately $341, representing a rise of roughly 141% since that period.
Cost pressures and future outlook
The current cycle coincides with rising production costs. The iPhone 18 Pro and Pro Max launched in September at $1,199 and $1,299 respectively, marking a $100 increase over their predecessors. TrendForce estimates that memory costs for the 256GB iPhone 18 Pro have surged nearly 400% year over year. Consequently, memory now accounts for 34% of the phone's component costs, up from 10%.
Attention now turns to the iPhone Duo, with preorders opening October 16 and shipments beginning October 23. Munster expects the Duo to surprise to the upside, projecting units close to 20 million compared to current estimates of around 10 million. However, he cautioned that initial supply constraints could push delivery wait times to five weeks during the first month.
What the numbers show
A divergence exists between immediate hardware sentiment and long-term strategic positioning. While the stock reacted positively to the Monday close, the underlying data reveals a split narrative: strong hardware fundamentals versus emerging software vulnerabilities. The 400% jump in memory costs directly impacts margins, yet consumer demand remains resilient, evidenced by the 12% rise in early China sales. Simultaneously, the rapid adoption of Meta’s Muse, with 2.5 million downloads in two weeks, highlights a tangible threat to Apple’s services revenue potential, even as its 2.5 billion active devices provide a defensive moat. The market appears to be pricing in the hardware strength while beginning to discount the risk of losing the high-margin AI subscription layer.
If Apple fails to close the agentic AI gap within the next 12–18 months, how significantly could recurring AI subscription revenue losses impact its overall services segment growth trajectory?
Could Apple's 2.5 billion active device ecosystem realistically be leveraged to force a rapid catch-up in AI adoption, or does user lock-in to rival assistants create a structural ceiling that hardware scale alone cannot overcome?
With memory costs now representing 34% of iPhone 18 Pro component costs, how sustainable is Apple's premium pricing strategy if competitors offer comparable AI capabilities at lower price points?
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