The AI Dark Horse: Why Apple Could Win the Next Evolution of the AI Arms Race

Apple's AI Strategy and Stock Performance

• Apple had a rough start to the year with its shares tumbling more than 5%, marking its worst start since 1982.

• Microsoft has surpassed Apple as the most valuable company by market cap, raising concerns about Apple's performance and strategy.

• Critics have blamed Apple for not having a clear AI strategy like its peers, Microsoft and Google, impacting its revenue potential.

• Apple's stock performance last year lagged behind its peers, with only a 50% spike compared to the meteoric gains of companies like Nvidia and Amazon.

• The number of times AI was mentioned on earnings calls reflects Apple's late entry and minimal focus on AI strategy compared to Amazon, Microsoft, and Google.

Apple's AI Strategy and Stock Performance

The Rise of Apple in Edge AI

• In the world of AI, many experts believe that Apple has the long-term edge in Edge AI, particularly by 2024.

• Edge AI, also known as on-device AI, is the concept of running large language models like OpenAI GPT on devices such as phones and computers, rather than relying on cloud storage. This development could lead to faster, more personalized, and secure AI experiences for consumers.

• Morgan Stanley predicts that 2024 will be the year when Apple's Edge AI opportunity comes to fruition, potentially shifting the advantage from cloud players like Amazon's AWS and Microsoft's Azure to Apple.

• Apple's vertical integration of hardware, software, silicon, and services sets it apart from others in the industry. From smartphones to computers, and even the new venture into augmented reality with the Vision Pro, Apple's success across diverse devices and its commitment to on-device AI make it a formidable force in the AI landscape.

The Rise of Apple in Edge AI

Apple's Advancement in AI and Custom Silicon

• Apple is strategically positioned to deliver AI-enabled devices with its own operating system, and is expected to brand some of their hardware as optimized for AI on the edge by 2024.

• The company has been moving more chip design in-house over the last few years, resulting in more powerful products and less dependence on outside manufacturers like Intel. This transition to Apple silicon gives them greater control of the supply chain and the ability to make chips more efficient and cost-effective.

• Apple's world-class silicon design team has been a game-changer, positioning them as a leader in edge AI. Their custom silicon, particularly the 3nm chip, is exceptionally fast and is expected to be integrated into their devices, enhancing their AI capabilities.

• As the industry transitions from training to inference, Apple's chip design advancements place them ahead of other phone and computer makers. With the ability to efficiently execute inference tasks, Apple's chips are expected to outperform others in handling AI model requests and questions.

Apple's Advancement in AI and Custom Silicon

Apple's AI Opportunity and Challenges

• Apple's focus on monetizing AI and turning it into revenue is a key question for investors and the stock. Morgan Stanley predicts an AI iPhone launch by fall 2024, potentially driving a replacement cycle for iPhones which has stretched to a record 4 and a half years.

• The acceleration of Apple's efforts to bring AI features to market increases the likelihood of an AI iPhone launch. If executed successfully, with the best AI capabilities, it could lead to increased sales of phones and computers, crucial for Apple amidst four straight quarters of sales declines, the worst in 22 years.

• Analysts expect Apple to launch its foundational AI model named Ajax in June of this year, integrating AI into its services such as Apple Music, Apple TV Plus, iCloud, and the app store. AI-powered health, financial, and fitness assistance are seen as increasingly important segments for Apple's services business.

• While Apple has the opportunity to leapfrog competitors with Siri powered by AI, the company has not been effective in telling its AI story, unlike Google, Microsoft, and Amazon. This has led to perceptions of Apple playing catch-up in the AI space.

Apple's AI Opportunity and Challenges

Apple's Strategic Approach to AI

• Apple is known for being a late mover in the technology industry, but it excels in playing the long game.

• Despite not being the first to invent smartphones, tablets, or smartwatches, Apple's devices are now considered best in class.

• In the field of AI, Apple's strategy involves making deals with major news organizations to utilize their content for AI development.

• Apple's cautious approach to user data and privacy, stemming from its strict privacy controls, may hinder its AI model's training process despite having access to a vast amount of user data.

• While other companies may prioritize harvesting personalized data for AI model training, Apple's commitment to privacy and simplicity positions it as a potential dark horse in the AI race.

Apple's Strategic Approach to AI

Conclusion:

Apple's cautious approach, long-term strategy, and commitment to on-device AI put the company in a strong position to compete in the next evolution of the AI arms race. With the potential for an AI iPhone launch and a focus on monetizing AI, Apple's future in AI looks promising.