The Apple Paradox

According to FactSet, Apple stock reached an all-time high last week after rising 39% since August 1st. This surge followed the underwhelming launch of Apple Intelligence, Apple's attempt to integrate artificial intelligence into its devices.

While "front-line" language models like ChatGPT or Gemini require massive data centers and are too resource-intensive to run on a phone, Apple chose the long-term approach to deliver a sufficiently good experience. According to the WSJ, Apple's late arrival in AI doesn't matter.

The iPhone manufacturer's unique approach.

According to Apple's internal assessment, the company is 2.5 years behind the leading players in AI. During that time, ChatGPT and Gemini were still under development.

Tech giants are placing big bets on AI becoming the next computing platform. In 2024, Alphabet, Google's parent company, invested over $75 billion in developing AI infrastructure. Microsoft poured over $13 billion into OpenAI and is racing to integrate AI into everything from Office to Windows.

Despite hundreds of billions of dollars being invested, the result is the same: AI models struggle to differentiate themselves significantly from one another. Some enterprise customers, such as Marc Benioff, CEO of Salesforce, say that AI language models are becoming commonplace. Owning the best chatbot only provides a short-term advantage.

“We use all the major programming language models. Now they’re all very good, so we can switch between them easily,” he said at the company’s third-quarter earnings call. Ironically, the cheapest models are the ones that perform best.

Tech giants' spending on AI. Photo: FactSet.

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

Apple is taking its own pace, prioritizing user experience and privacy over speed. Amidst the AI war, Apple created Private Cloud Compute, open-source server software written in a programming language, with chips and running on entirely in-house servers.

The company wants to own and control everything related to privacy and security. Private Cloud Comput helps to mask private conversations with AI, ensuring that when the Siri upgrade is launched, it will be more secure than any other chatbot.

Apple only slightly increased its capital spending to support Private Cloud Compute. Therefore, while depreciation for Alphabet, Microsoft, and Meta increased by 41%, 93%, and 20% respectively, Apple's only increased by 7% in the most recent quarter. If the time comes for significant capital investment, Apple has ample room to do so.

AI is not the key factor.

While seeking to integrate AI into its products, Apple has retained its other strengths. Wall Street analysts agree that the iPhone 17 will drive device sales growth to its highest level since fiscal year 2021.

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

This suggests that Apple doesn't 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, not based on new features.

The iPhone 16 was touted as an AI smartphone, but sales didn't live up to expectations. Photo: Apple.

The iPhone 16 was heavily promoted as the Apple Intelligence phone, and sales were decent but not outstanding. 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 smartphone users in the US consider AI features an important factor when choosing a device, placing it last. Meanwhile, price, battery life, storage capacity, camera quality, and durability are all more important and practical for customers.

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

Source: https://znews.vn/nghich-ly-apple-post1609694.html