AI: Apple's perceived AI headwinds
...Calling the Shot on Apple and AI, small and large
Regular readers may recall my ‘Calling the Shot’ last August, on Google more than holdings its own on AI and Search vs OpenAI and Microsoft.
I’m doing the same on Apple today in light of the building ‘Wall of Worry’ related Apple’s AI Tech Wave position this year and beyond. Believe Apple will soon be viewed as having a lot more AI tailwinds than currently believed by many. Especially in the all important top Box no. 6 below:
First up, just as with Google, the market is looking at a ‘Tortoise vs the Hare’ AI race with Microsoft/OpenAI for Apple as well. Particularly since Microsoft under the deft leadership by CEO Satya Nadella has leveraged its multibillion dollar partnership with OpenAI into a trillion dollar in market cap with Copilot and other AI initiatives. A lot achieved by Microsoft over the last year post OpenAI’s ‘ChatGPT moment’ in November of 2022.
Axios notes the neck and neck stock market performance of the two companies, complete with charts.
As Business Insider noted a few days ago in “Microsoft's market cap hit $2.89 trillion as it overtook Apple as the world's most valuable public company”:
“Microsoft closed out Friday as the world's most valuable publicly traded company, pushing its long-time rival Apple off the top spot.”
“The tech giant hit a market cap of $2.89 trillion while Apple's fell slightly to $2.87 trillion.”
“Much of Microsoft's success has been credited to it embracing AI, led by the company's lucrative $10 billion investment in Sam Altman's OpenAI.”
“The rise of artificial intelligence has captivated investors and helped leave the NASDAQ-100 up nearly 54% last year.”
“And many analysts predict the AI boom will continue into 2024.”
The piece then goes into some of the market headwinds for Apple, including AI issues:
“Apple is embroiled in a public legal battle that has blocked US sales of its Apple Watch and suffered three stock downgrades so far in January.”
“The first downgrade by UK bank Barclays wiped out more than $100 billion in market cap in a single day.”
“Apple's problems in China are also expected to continue this year, as Chinese government officials are banned from using the California-based company's devices and homegrown rivals like Huawei are gaining ground.”
“Jefferies analysts recently said that the slow sales for the iPhone 15 in China have resulted in a 30% year-on-year decline in the country.”
I’ve discussed the China issues for Apple as well, and believe they remain manageable in the current US-China environment.
Then there are additional tactical concerns around Apple’s launch of its multibillion dollar effort with its next ‘Spatial Computing’ platform with Vision Pro last week. A key example of these perceived AI headwinds there, is this Bloomberg piece by Mark Gurman, following Apple’s Vision Pro going on sale on Friday:
“The success of Apple Inc.’s Vision Pro, like many new technology platforms, will largely depend on support from third-party apps and services. And that’s an area where the device still faces plenty of questions.”
“Some big name developers thus far aren’t doing much to help the device. Three of the world’s most popular streaming services — Netflix Inc., YouTube and Spotify Technology SA — have already signaled that they won’t be launching visionOS software or enabling their iPad apps to run on the Vision Pro.”
“Other key developers, including iOS and iPadOS mainstays like Google and Meta Platforms Inc., also appear ready to shun the new platform at the outset. That’s a break from the past.”
“High-profile developers previously made the jump to new Apple platforms right away. The App Stores on the iPhone and iPad were bursting with new titles quickly after their debuts, and both platforms now support millions of apps. The Vision Pro may be a different story.”
“The timing of the Vision Pro launch doesn’t help, coming at a particularly sensitive time for Apple and its developers. Software makers have fumed for years about App Store policies, and Apple’s new approach to letting developers process payments outside their apps — but still pay Apple a commission of as much as 27% — isn’t sitting well with some.”
“Spotify blasted the new policy last week, saying that “Apple has demonstrated that they will stop at nothing to protect the profits they exact on the backs of developers and consumers under their app store monopoly.”
“Apple has touted that the Vision Pro will run more than 1 million apps out of the box, including software from Walt Disney Co., TikTok, Amazon.com Inc., Paramount Global and many others. But I’d venture to guess that 99% of the total applications are iPad versions — rather than new software designed for the visionOS, the headset’s operating system.”
“Developers who offer software for the iPad automatically see their apps pop up on the Vision Pro App Store. That is, unless they opt out — as Netflix, Spotify and YouTube are planning to do.”
So the macro and micro concerns around Apple, including its lack of perceived positioning on AI vs the other ‘Magnificent 7’ like Microsoft, Google, Meta, Nvidia, Amazon, and Tesla are noteworthy elements of the AI “Wall of Worry’ going into 2024.
While this isn’t a stock market call, I’d counter with the following points in my “Calling the Shot’ for Apple and AI opportunities:
Think Apple is far better positioned on AI, especially on ‘Small AI’ on devices than generally understood. As I’ve stated before, believe ‘Small AI’ on local devices is as important if not more so in terms of AI applications, products and services that actually touch billions of users every day. The only other company with that direct contact at scale, is Google with its Search and other consumer products and services. And they uniquely control hardware and software experience in over two billion plus devices worldwide.
Apple circles them all in terms of efficiency and capabilities in local AI chips with Apple Silicon. They’re amongst Taiwan Semiconductor’s (TSMC)’s biggest customer and financial backer of their ‘fabs’. So as much in a ‘pole position’ as Nvidia, Meta and Microsoft amongst others.
Apple JUST HASN'T ANNOUNCED ITS AI HAND YET. That’s Apple’s way. Everyone else generally announces and talks about AI products and services far ahead of availability. Note how Samsung toned down expectations around its latest smartphone’s ‘Galaxy AI’ features, including additional charges next year. Apple’s iPhone has already taken a global lead over Samsung and others in the past few months.
Expect Apple to have some big moves ahead for ‘Large AI’ LLM AI by WWDC in June. They could roll their own, or undertake partnerships with Google’s Gemini and/or OpenAI’s GPT-4 and next generation LLM AI models. Or of course others like Anthropic, which has already partnered with both Amazon and Google. As has been noted by many observers, Apple is busy working away on their efforts here without saying much yet.
Finally, am expecting the whole street thesis on Apple to change in terms of it being a bigger tailwind than for all above with the exception of Google keeping their lead with AI driven Search.
Again, none of this is a stock market call. But it is emphasizing that Apple is far from being out of the AI opportunities race, especially this early in the AI Tech Wave. Vision Pro ‘Killer App’ uncertainties and all. Stay tuned.
(NOTE: The discussions here are for information purposes only, and not meant as investment advice at any time. Thanks for joining us here)
Being direct, I don't believe you made a compelling case here. Your thesis seems to rely a lot on "Apple is definitely working on AI, we just don't know what it is yet". Also missing: Thoughts on how Apple might use AI, how AI is used in the Vision product, past software wins Apple has had that point to what they might do here, etc.