Apple has a surprising advantage

Apple shares hit an all-time high this week after rising 39% since August 1, according to FactSet. The rally followed the underwhelming debut of Apple Intelligence, Apple’s effort to integrate artificial intelligence into its devices.

While “front-line” language models like ChatGPT or Gemini require huge data centers and are too heavy to run on a phone, Apple is choosing to go the long way to deliver a good enough experience. According to WSJ, it doesn’t matter if Apple is late to AI.

The iPhone manufacturer's own direction

According to Apple's internal assessment, the company is 2.5 years behind the leading names in the field of AI. During that time, ChatGPT or Gemini was still in development.

Tech giants are betting big on AI becoming the next computing platform. Alphabet, Google’s parent company, has invested more than $75 billion in AI infrastructure development by 2024. Microsoft has poured more than $13 billion into OpenAI and is racing to integrate AI into everything from Office to Windows.

Despite hundreds of billions of dollars being poured into it, the result is that AI models struggle to differentiate themselves from one another. Some enterprise customers, like Salesforce CEO Marc Benioff, say AI language models are becoming commoditized. Having the best chatbot model only provides a fleeting advantage.

“We use all the major language models. They’re all so good now, we can switch back and forth easily,” he said on the company’s third-quarter earnings call. The paradox is that the cheapest models are performing well.

Tech giants' spending on AI. Photo: FactSet.

Apple is reportedly in talks with Alphabet and startup Anthropic to use their AI models as a temporary solution while the company develops its own high-performance models.

Apple is moving at its own pace, prioritizing user experience and privacy over speed. In the midst of the AI war, Apple created Private Cloud Compute, open-source server software written in programming languages, with chips and running on entirely internal servers.

The company wants to own and control everything when it comes to privacy and security. Private Cloud Comput helps mask personal conversations with AI, ensuring that when Siri's upgrade rolls out, it will be safer than any other chatbot.

Apple only increased capital expenditures slightly to support Private Cloud Compute. So while Alphabet, Microsoft, and Meta increased depreciation by 41%, 93%, and 20%, respectively, Apple’s was up just 7% in the most recent quarter. If the time comes to invest heavily, Apple has plenty of room to do so.

AI is not the key factor

While Apple is looking to integrate AI into its products, it's still maintaining other strengths. Wall Street analysts agree that the iPhone 17 will drive the highest unit sales growth since fiscal 2021.

Services revenue continues to grow strongly, based on the more than 2.3 billion Apple devices in use. Since 2012, Apple has bought back nearly half of its outstanding shares, boosting its per-share earnings by 79%.

This shows that Apple does not need AI to sell devices, at least not yet. According to Barron's, since smartphones have become a mature market, users only buy new phones when they feel the need, regardless of new features.

iPhone 16 is promoted as an AI smartphone but sales are not as good. Photo: Apple.

The iPhone 16 was heavily marketed as the Apple Intelligence phone, and sales were decent but not great. Now the iPhone 17 series is being sold in the familiar way of focusing on hardware, design and camera, and it seems to be showing better results.

According to a 2024 CNET/YouGov survey, only 11% of US smartphone users consider AI features to be an important factor when choosing a device, coming in last place. Meanwhile, price, battery life, storage capacity, camera quality and durability are all more important and realistic to customers.

In December 2024, responding to concerns about AI, CEO Tim Cook said that Apple is rarely the first, but it is the best. Apple’s advantage lies in its ability to wait for the technology to mature and for real demand to emerge. Meanwhile, competitors rush to launch new, even unfinished features to quickly gain market leadership.

Source: https://znews.vn/apple-bat-ngo-co-loi-the-post1609694.html