The race is on to bring generative artificial intelligence (AI) technology to the smartphone in your pocket. And to judge by the speed at which the technology is advancing, we could see a transformation of mobile communications and computing much faster than what seemed possible just months ago.
The launch of ChatGPT brought generative AI to widespread attention, but the prospect of bringing it to handsets seemed a distant hope. Besides training the so-called large language models (LLMs) behind such services, the work of inferencing — or running the models to produce results — is computationally demanding. Handsets lack the memory to hold large models like the one behind ChatGPT, as well as the processing power required to run them.
Progress is being made, however, and at surprising speed - which is increasing the attention on Apple (AAPL). So far, its stock has not participated in the speculative frenzy around AI technology. But that may change in the near future.
Apple Stock and AI
Apple is very quietly raising its capabilities in artificial intelligence. It has made a series of acquisitions, staff hires, and hardware updates that are designed to bring AI to its next generation of iPhones.
The company’s researchers seem most focused on the task. For example, Apple researchers published a paper in December announcing that they had made a breakthrough in running LLMs on-device by using Flash memory. This means queries can be processed faster, even offline.
And here’s something that may surprise many investors - Apple has been more active than rival big tech companies in buying AI start-ups. According to data from PitchBook, it has acquired 21 AI start-ups since the beginning of 2017.
In a typical move for Apple, the company has been secretive about its AI plans, unlike the other big tech firms - Microsoft (MSFT), Alphabet (GOOG), and Amazon (AMZN) - that have touted multibillion-dollar investments in AI technology.
Judging by the quiet moves it has made, Apple seems to be working on its own large language models — the technology that powers generative AI products, such as OpenAI’s ChatGPT. Apple’s goal seems to be operating generative AI through its iPhones, which would allow AI chatbots and apps to run on the phone’s own hardware and software, rather than being powered by cloud services in data centers.
This is a huge technological challenge that requires reductions in the size of the large language models, as well as higher-performance processors.
It should be an exciting Worldwide Developers Conference (WWDC) for Apple this June. It is widely expected to be the event where the company reveals its latest operating system, iOS 18. The expectation is that iOS18 will be geared towards enabling generative AI, and may include its almost-forgotten voice assistant Siri, powered by an LLM.
Bear in mind that Apple has made a lot of progress already with its new chips, which are faster and more powerful, and therefore more capable of running generative AI.
The company said its M3 Max processor for the MacBook, revealed in October, “unlocks workflows previously not possible on a laptop,” such as AI developers working with billions of data parameters.
The S9 chip for new versions of the Apple Watch, unveiled in September, allows Siri to access and log data without connecting to the internet. And the A17 Pro chip in the iPhone 15, also announced in September, has a neural engine that Apple says is twice as fast as previous generations.
Building the “smartest” generative AI is all about powerful chips, and while Nvidia (NVDA) dominates that market for cloud-based servers, Apple seems to be well-positioned to be the first to do that successfully on smaller devices.
Where to Buy Apple Stock Now
Keep in mind, though, that Apple is not trying to compete in the same sectors for AI as Google or Microsoft. Its focus is on what it has been for decades - to benefit their Apple ecosystem, and to protect their installed base.
And while sales of the iPhone are currently relatively weak, that will change. I expect that the next upgrade cycle for iPhones will be boosted by demand for new generative AI features to appear later this year and in 2025.
Remember that Apple, famously, does not rush into new markets. It holds back, often seemingly ceding first-mover advantage to rivals, until it believes it has a sure-fire hit on its hands. Then it goes in, “guns” blazing, and usually dominates the market it targets. That’s what happened in smartphones and smartwatches.
Longer-term, as a business model, on-device AI promises better profit margins than AI services that need to be linked to the cloud. That’s because developers have to pay cloud providers like Amazon or Microsoft huge sums each time a customer uses their AI tool, which requires the processing power of those Big Tech companies’ servers.
Add it all up, and Apple stock is a buy here in the months before it reveals some of its AI plans - despite any potential short-term volatility around tonight's earnings announcement. Buy AAPL around $187 a share.
On the date of publication, Tony Daltorio did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.