The AI dark horse: Why Apple could win the next evolution of the AI arms race

[Music] much was made about Apple's terrible horrible very bad no good start to the year shares of Apple tumbling to start the new year another downgrade for Apple the stock down more than 5% so far this year and it's early shares of Apple are off to their worst start since 1982 Microsoft has surpassed apple as the most valuable by market cap some of the loudest critics they blamed Apple for not having an AI strategy like it's Mega cap Pi it's not a business services company like Microsoft is and like like Google is alphabet is so I don't know how much uh AI is going to impact their revenue that's where I struggle I'm sure people smarter than me are figuring it out know where it is but I've asked the question to people say oh they're going to be the leading AI player I said where why what well that is what we are here for this week on Tech check be where why and what of Apple's AI story Apple's nearly 50% stock Spike last year that was nothing to scoff at but it was nowhere near the meteor gains of its Magnificent Seven peers Nvidia Amazon it also lagged behind Microsoft and alphabet when it comes to the Magnificent 7 it's the seventh of seven all stocks that one could argue have clearer AI stories I know what the AI strategy is for other companies like Microsoft I know what the AI strategy is for alphabet and Apple's unwillingness to communicate that story it doesn't help this chart shows the number of times AI was mentioned on earnings calls Apple wasn't just late to the game it barely cross 10 mentions compared to the 50 70 and 90 of Amazon Microsoft and Google people think that Apple's behind they just do but there are some who say that longterm Apple has the edge including altimer Brad gersner who wrote that many people are asleep on Apple when they discuss AI 2024 he says this the year when they discover Apple is very very much awake and then there's Morgan Stanley which thinks that quote 2024 will be the year when Apple's Edge AI opportunity likely comes to fruition Edge AI sometimes called on device AI this is the idea that soon devices like our phones and computers they will be powerful enough to run entire large language models like open AI gbt instead of being stored in the cloud for consumers that could mean faster more personalized and more secure AI EDI doesn't have to communicate with distant servers and uses your own data stored locally I anticipate Apple will be one of the first ones out with a true personal digital syst and here's the key the data will stay resident on your phone it bypasses the key Cloud players that won 2023 like Amazon's AWS and Microsoft's Azure potentially Shifting the upper hand to Apple We Believe 2024 will be the first year we see Mass adoption of consumer on device Ai and then Apple will be the single source of trust for a lot of currently what perceived as a very fragmented consumer facing AI apps Apple also has something few others do and that is the vertical integration of Hardware software silicon and services let's break that down apple is one of the very few Hardware companies that has had success across many different key devices smartphones computers webl like the Apple watch and airpods now it's trying to break into augmented reality headsets with the Vision Pro it's a current install base of 2 billion so unlike an Amazon and more so than a Microsoft or a Google Apple is positioned to deliver an AI enabled device already running on its own operating system look for them to start to Brand some of their Hardware as more optimized for AI on the edge in 2024 next the custom silicon over the last few years Apple has moved more chip design in-house making their products more powerful than ever today is the day we're announcing that the Mac is transitioning to our own Apple silicon it gives them more control of the supply chain less dependence on outside manufacturers like Intel and the ability to make chips more efficient for cheaper having a worldclass silicon design team is a GameChanger that'll also pay off in this transition to Edge AI Apple because what they're doing in Silicon over the past several years is they brought more of that house puts them in a unique place to be a leader when it comes to this Edge essentially they've got better chips than most of the other phone makers out there and a lot of the other computer and laptop makers out there especially as another transition plays out this year from training to inference in 2023 when foundational models like open ai's chat gbt Google's Gemini anthropics Cloud were created they needed to be trained on those expensive Industrial Level chips that only nid ah had now that those models have been trained though the next step is inference simply feeding the model requests or asking questions what Apple's doing is giving a great chip a 3 nmet chip uh which is a a wicked fast chip that's going to be on your phone that's going to be great at getting inferences and that of course is when you ask a question it generating a response the key question for investors and the stock how will Apple monetize and turn this AI opportunity into cold heart Revenue Morgan Stanley writes that quote Apple's efforts to bring these features to Market are accelerating increasing the likelihood of an AI iPhone launch as soon as fall 2024 and if there is an AI phone that could give consumers incentive to replace theirs adding a new Catalyst to the iPhone replacement cycle which has now stretched to a record 4 and a half years if they do it right with having the best AI on the edge and they're going to sell more phones and computers this is crucial for Apple which has seen four straight quarters of sales declines it's worst rut in 22 years what could also help a Siri powered by AI that could Leap Frog competitors when you use your your your cell phone the thing that has not been as great as they'd like is Siri uh I think they can make that much more uh involved with artificial intelligence analysts expect Apple to launch its own foundational model reportedly named Ajax in June of this year another increasingly important segment for Apple IT services business those subscription offerings like apple music Apple TV plus iCloud plus revenue from its money printing app store Apple could integrate AI into those native Services more with AI powered Health financial and fitness assistance on the flip side Apple has not been great at telling its AI story it hasn't announced its own large language model like Google and metah have or made splashy Investments like Microsoft and Amazon some say that has Apple playing catchup but others argue that apple is rarely first that in fact it plays the long game better than anyone else what is Apple doing in Ai and the answer is a lot it's a strategy that apple is known for being last but best mover it didn't invent the smartphone the tablet nor the Smartwatch but now those devices are seen as Best in Class I guess we're going to wait and see what Apple has to deliver as it relates to AI they're not going to you know sit there and and and do nothing that's for sure especially as some of those other quicker moving Mega caps may be opening themselves up to regulatory scrutiny and lawsuits the FTC the UK CMA and the European Union are reportedly all looking into Microsoft's deal with open aai and the New York Times is now suing Microsoft and open aai for use of their copyrighted articles Apple taking the slower approach is instead trying to in deals with major news organizations to use their content to develop its AI their more cautious strategy also applies to user data and privacy Apple has access to mountains of data with 2 billion devices and 1.2 billion users but using that to train their AI model could go against their culture of strict privacy controls they would have a golden opportunity if they would take that personalized data and use it to the benefit of training a model but that would be crushing to their brand around uh around sa safety security privacy that could mean sacrifice having the best model out there they're going to give up uh some some of those insights that they could have a lot of other companies would want to harvest that means that their model is not going to be as good as the other Foundation models but for consumers who value privacy and simplicity Apple may be the darkh horse in the AI race

Channel: CNBC Television

Views: 790,840

Keywords: app, business news, cnbc, digital, disrupt, funding, innovation, investors, nasdaq, nyse, online, silicon valley, startup, stock market, tech, techcheck, technology, venture, wall street

Id: DRwB5Nvnpe4

Length: 9min 8sec (548 seconds)

Published: Fri Jan 12 2024