Nvidia this past week topped the $3 trillion market value level for the first time, briefly supplanting Apple as the world’s second-most valuable company. ( Microsoft still holds the top spot, though not by much.)
The contrast between Nvidia and Apple is stark. Nvidia shares have rallied 144% this year. Apple is up 1%. Nvidia grew revenue 262% year over year in its most recent quarter, thanks to insatiable demand for artificial intelligence chips. Apple’s latest quarterly revenue was down 4%.
Nvidia sales have nearly quadrupled over five quarters. Apple has suffered year-over-year sales declines in five of its past six quarters.
You get the idea: Nvidia’s business is hot. Apple’s is not.
All of that underlines the importance of CEO Tim Cook’s keynote address at Apple’s 2024 Worldwide Developers Conference, scheduled for Monday at 10 a.m. Pacific.
Forty years ago, Apple used WWDC to highlight its new Mac. This year, the event will be all about AI. And for good reason. The uninspired performance of Apple shares reflects the company’s lack of substantive progress in generative AI, arguably the most important tech development in decades.
To be clear, Apple hasn’t been sitting idle. The company has been including neural processing capability in iPhone and Mac chips since 2017. Apple uses AI for facial recognition to unlock iPhones, for fingerprint scanning on Macs, and to improve iPhone photos. Apple has published papers on large language models, and Cook has made vague promises of AI magic to come.
But now Apple has to deliver. Here are four key themes surrounding this year’s keynote:
Sam I Am: Apple seems unlikely to directly take on OpenAI, Microsoft, Meta Platforms, Alphabet’s Google or Anthropic in large language models. Instead, Apple will likely partner with an LLM provider, not unlike its longstanding search relationship with Google.
The smart speculation is that Apple will join forces with OpenAI and its cloud computing partner Microsoft. (Might OpenAI’s Sam Altman show up Monday? Or even Microsoft’s Satya Nadella? Stay tuned.)
Just how an Apple-OpenAI relationship would work is murky. Google pays Apple a whopping $20 billion a year to be the default search engine on iPhones and in the Safari web browser; Google in return gets search traffic it monetizes with ads.
In the case of AI, the monetization options are less clear. The cash flows could conceivably reverse, with Apple paying OpenAI—and in turn Microsoft—for the compute time required by users’ generative AI requests. Apple theoretically benefits indirectly from higher iPhone sales and reduced customer churn.
Gene Munster, managing partner at Deepwater Asset Management and a longtime Apple analyst, has mixed feelings about Apple’s likely approach. Aligning with OpenAI, he says, amounts to “outsourcing the fabric of the company.” But he adds that teaming up with OpenAI would effectively accelerate Apple’s AI efforts by five years.
Any AI deal that Apple cuts is likely get close regulatory scrutiny. Remember that a decision is expected later this year in a Department of Justice antitrust suit against Google that could lead to a forced breakup of Apple and Google’s search deal.
Siri Is Dead. Long Live Siri:I recently asked Siri how it compares with ChatGPT, the chatbot from OpenAI. Siri gave me links. ChatGPT answered the same question in prose. While Siri is “optimized for quick tasks,” ChatGPT told me, “I am designed for deeper, more comprehensive conversations, creating writing, and detailed explanations across a wide range of topics.”
With the help of AI, Apple is likely to transform Siri into a digital assistant that adds the full chatbot experience on top its existing weather reports. Analysts expect hooks into Apple’s native applications, such as Mail, Messenger, Music, and Safari.
What could take longer is connecting Siri with third-party apps. Someday, you’ll be able to get Siri to call you an Uber when you fly into a new city. Eventually, Siri should simply figure out when you’ve landed and ask if you need an Uber. But not just yet.
Big Models, Small Models: There are obvious issues with relying on cloud-based AI. Queries are expensive, requiring far more computing power than internet search. There are privacy risks. You need a network connection. And there are latency issues—it can take time to get responses.
It seems likely that in addition to a cloud AI partner, Apple will offer AI capabilities that rely on smaller models running locally on iPhones, iPads, and Macs. Imagine AI apps for health and fitness or for suggesting email responses. Expect AI-powered text summarization, new AI-enabled photo editing, AI image creation, and perhaps on-the-fly language translation.
Expectations Risk:Apple shares have been rallying lately in hopes of an AI miracle. “The one thing that will get answered is what Apple’s AI strategy is going to be,” Goldman Sachs hardware analyst Michael Ng says.
But Ng adds that the Gen-AI features coming at WWDC won’t necessarily make a big difference in the company’s near-term financial outlook. The real question is whether it will drive hardware sales over time.
Morgan Stanley analyst Erik Woodring thinks Apple will launch some AI experiences that will only run on iPhone 15 Pros and future models.
Ng expects iPhone unit growth of 4% in fiscal 2025, after a 2% decline in 2023.
Will that be enough for Apple bulls? That’s one question even ChatGPT can’t answer.
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