• Apple updated its “risk factors” section in its most recent 10-K filing.
• The tech giant warned about the profitability of future products and risks related to “geopolitical tensions” and AI features.
• It is common for companies to update their risk factors with potential business challenges.

Apple’s latest annual report provides insight into what the tech giant sees as potential risks to its business.

The tech giant recently reviewed its business “risk factors,” which the SEC requires publicly traded companies to disclose, in its latest 10-K filing.

This year, new mentions included risks associated with the financial performance of future profits, “geopolitical tensions” and safety risks associated with AI functions.

The company warned that the new products may not be able to replicate the profit levels of its current offerings, which include its main moneymaker, the iPhone.

“New products, services and technologies may replace or displace existing offerings and result in lower revenues and lower profit margins,” Apple wrote, “which may have a material adverse impact on the Company’s business, results of operations and financial condition “.

Apple also introduced new language warning about the potential impact of “geopolitical tensions” and security risks associated with AI features that did not appear in last year’s version of the file.

“The introduction of new and complex technologies, such as artificial intelligence features, may increase these and other safety risks, including exposing users to harmful, inaccurate or negative content and experiences,” Apple said.

“There can be no assurance that the Company will be able to detect and fix all problems and defects in the hardware, software and services it provides,” the company added. “Failure to do so may result in widespread technical and performance issues affecting the company’s products and services.”

Apple has expanded its product lineup in recent years to include new categories like Vision as it looks for new revenue generators amid increased competition for smartphones.

The iPhone, Apple’s cash cow, saw declining sales at the beginning of the year before returning to growth in most recent quarter. Apple reported that iPhone revenue rose 6% year-over-year in its fiscal fourth quarter. The tech giant is now betting that Apple Intelligence functions will lead to upgrades.

Morningstar analyst William Kerwin told Business Insider that investors shouldn’t be alarmed by the updated wording of Apple’s risk factors.

“We see pretty similar language between technology companies, and disruption risk along with new product risk are already well-known risks for Apple,” he said. “I don’t think this presents anything that management might know about or fear that isn’t already in the market.”

Forrester analyst Dipanjan Chatterjee told BI that the new language highlights “significant appreciation” for Apple. As the iPhone, which launched 17 years ago, enters its “fall years,” Chatterjee said Apple will need to consider a new long-term strategy.

“The big question for Apple is what’s next after the iPhone,” he said. “What is the next paradigm shift and will Apple be at the forefront of the movement?”

“The nature of consumer interactions will move ‘off the glass’ to the iPhone, and the change will be fueled by highly engaging experiences, such as the conversational interface, which has gradually improved thanks to Gen AI,” he added.

Tech giants, including Apple, have invested heavily in generative AI since ChatGPT arrived two years ago. Apple has been slower to integrate generative AI features into its products than rivals, but the first of its Apple Intelligence features was released on October 28.

The company is also betting on augmented reality, or “spatial computing” as Apple calls it, with its Vision Pro headset, and is reportedly exploring an entry into smart glasses market following Meta’s success with AI Ray-Bans and the ‘Orion’ prototype demo.

“If Apple is not part of the next evolutionary stage change in consumer devices,” Chatterjee said, “its business will be significantly and adversely affected.”