Apple Is "Way Behind" In AI - And Making A Fortune From It

There has been much hand-wringing about Apple's seeming inability to develop a coherent AI strategy even as old competitors like Google, Meta and Microsoft - along with newbies such as Anthropic and OpenAI - spend gazillions on the next sure thing. 

But those concerns, most of which are, in fact, crocodile tears - appear largely misplaced as Apple's revenues from AI top $1 billion thanks to its tollgate: the iPhone App Store through which most consumers and many business users secure their AI services. Laughing all the way to the bank is what it is called, even as the company ponders whether it even needs an AI strategy. JL

Rolfe Winkler and Nate Rattner report in the Wall Street Journal:

Apple is on pace to surpass $1 billion in AI revenue this year, a sum that demonstrates the company’s AI advantage. What Apple has that other AI players don’t is a dominant position (in) devices. However fancy OpenAI, Google, Anthropic and xAI make their chatbots, iPhones are still a primary way to deliver them to consumers. That means they pay the App Store tax, 30% of subscription fees in the first year and 15% a year thereafter. Gen AI apps paid Apple nearly $900 million in App Store fees in 2025. (As) competitors spend hundreds of billions of dollars on chips and data centers, Apple is spending a fraction of that, instead using the personal information people store on their iPhones together with chips it designs itself to power an on-device AI strategy.

Apple AAPL -1.69%decrease; red down pointing triangle is on pace to surpass $1 billion in artificial-intelligence revenue this year, a tidy sum that demonstrates the company’s AI advantage even as it struggles to deliver an AI strategy of its own.

Its Siri chatbot is still weak by modern AI standards. What Apple does have that the other AI players don’t is a dominant position making devices. However fancy OpenAI, Google, Anthropic and xAI make their chatbots, iPhones are still a primary way to deliver them to consumers.

That means they typically pay the App Store tax, roughly 30% of subscription fees in the first year and 15% a year thereafter, though rates vary by country. Generative AI apps paid Apple nearly $900 million in App Store fees in 2025, according to the analysis firm AppMagic.

Three-fourths of the revenue Apple rakes in from GenAI apps in its App Store comes from ChatGPT, according to AppMagic. Next, at about 5%, is xAI’s Grok. Apple’s revenue from GenAI apps rose from about $35 million in January 2025 to a high of $101 million in August. Sales have fallen from their peak, partly because ChatGPT downloads have declined, according to the data.

As a proportion of Apple’s total sales, $1 billion is small. Yet GenAI apps are a growth driver for Apple’s services business, which investors have focused on in recent years because it has grown faster than device sales and boasts higher profit margins.

Apple’s dominant share at the top of the smartphone market affords it another luxury: time to get its own AI strategy right. 

Apple’s AI plan runs counter to strategies of competitors that are spending hundreds of billions of dollars on chips and data centers to build frontier large language models. Apple is spending a fraction of that, aiming instead to use all the personal information people store on their iPhones together with chips it designs itself to power an on-device AI strategy.

That strategy could prove a winner if, as some AI researchers have suggested, access to user data and strong user privacy makes on-device AI the dominant way consumers access the technology.

Capital expenditures, quarterly

$40

billion

Amazon

Microsoft

30

Alphabet

Meta

20

Oracle

10

Apple

0

2020

2021

2022

2023

2024

2025

2026

Note: Data include finance leases and are for calendar quarters. Oracle reports quarterly data for periods ending in February, May, August and November; other companies report for periods ending in March, June, September and December.

Source: the companies

Apple investors want to see progress from Apple’s own AI strategy, said Charles Rinehart, chief investment officer of Johnson Asset Management, an Apple shareholder. “If they can act as a toll road for providers of AI, then they’ll probably end up looking good long-term for not having the big capex overhang,” he added.

Apps can reduce fees they pay Apple by requiring users to sign up for subscriptions on their own websites instead of in the App Store, though not in every market, and not all are pushing this option. ChatGPT enables users to buy a subscription through its website, but doesn’t offer any incentive, such as a discount, for selecting that option, according to Journal tests.

Apple has struggled for years to update Siri, contributing to the departure announcement of its top AI executive, John Giannandrea, last year. Siri is built on old technology. It completes basic tasks such as setting an alarm but can’t remember a conversation. Above all, Siri can’t do deep research or create content the way ChatGPT and other modern chatbots do.

Apple and Google in January announced that Gemini will power a new version of Siri coming this year. 

OpenAI wants to take control of its own destiny by developing devices. It acquired a hardware startup co-founded by former top designers from Apple, including Jony Ive. Others have left Apple to join the effort. 

Elon Musk flirted with making a smartphone in the past, The Wall Street Journal has reported, though he posted on X in February, “We are not developing a phone.”

Google makes the other dominant smartphone operating system, Android, and builds its own Pixel smartphones that include AI features Apple can’t yet match. But those features haven’t proven powerful enough to persuade iPhone users to switch.

For its part, OpenAI might find it is harder to take market share from the iPhone and replicate a device ecosystem than it is for Apple to deliver competent AI. Indeed, OpenAI has tried to build its own app strategy, yet the apps on its platform aren’t very useful compared with smartphone apps