Apple AI and why investors should expect earnings growth

Another day, another case of Apple stoking the fires of growth on Wall Street with two magic letters: AI.

Tim Cook's comments at a shareholder meeting that Apple is breaking new ground in artificial intelligence this year were intended to excite investors. However, according to one analyst, the market was not convinced by the promises. Still, they make the case that investors should be optimistic about the company's AI-powered revenue growth.

Apple, meanwhile, has found new ways to market its existing AI chips. That is, the term is AI, not technology.

Growth powered by artificial intelligence

Gene Munster, managing partner of Deepwater Asset Management, characterizes today's decline in AAPL shares as a vote of no confidence among investors in Apple's artificial intelligence. strategy:

$AAPL fell 3% today as investors vote limited confidence in its AI strategy. By now it has become clear that in June of this year we will see their first basic model, which will compete with GPT, Gemini, xAI, Anthropic. The only unknown is what the basic model means for Apple's business?

However, Munster predicts that Apple AI still has potential to move ahead in terms of revenue:

AI can move the revenue needle. Apple has 2.2 billion active devices, which I estimate are owned by 1.4 billion active users. If 20% of Apple's active base subscribed to an AI product (personalized AI) for $10 per month, that would be $33 billion per year at an 80% contribution margin, increasing operating income by 16%. ($155 billion in CY23 operating income).

He compares investors' potentially short-sighted view to a similar situation with Meta, where the long term was out of focus:

AAPL stock's action this year reminds me a bit of when investor fears that Meta would lose stake to TikTok sent the stock crashing to $100 in the fall of 2022. Ultimately, these products (Meta, Google Search, Microsoft Office and Apple Services) remain ineffective in the long run.

AI hype

So what can we really expect from Apple in the AI ​​category this year?

Apple CEO Tim Cook said last week that he believes Apple will “break new ground” in generative artificial intelligence this year. A few weeks earlier, Cook promised that Apple AI announcements would come later this year, most likely at WWDC in June. That's when iOS 18 will be unveiled, which, as Bloomberg's Mark Gurman has frequently reported, will focus on AI features.

And last fall, Apple briefly mentioned generative AI, introducing new auto-correction features and text prediction worldwide. their platforms.

Of course, artificial intelligence has long been a focus for the company. In recent years, Apple has been selling the neural engine component of Apple silicon chips. Functions using the neural engine are described as ML or machine learning, but Apple is involved in changing the jargon.


Just this morning, Apple released a press release describing the MacBook Air M3 as the best consumer laptop for artificial intelligence (It uses the same M3 chip as the 14-inch MacBook Pro late 2023 year, but costs several hundred dollars more.)

And Apple isn't just looking for and replacing machine learning with artificial intelligence. . Generative AI has been fueling the AI ​​hype for the past 12 months, with Cook specifically mentioning generative AI in recent comments. The fast-growing category of artificial intelligence is also mentioned in the MacBook Air press release.

So on the one hand, Apple has been highlighting features that we don't really think of as artificial intelligence since generative AI came out. our focus:

Leveraging this incredible AI performance, macOS delivers smart features that boost productivity and creativity, so users can leverage powerful camera features, transform speech to text in real time, translation, text prediction, visual comprehension, accessibility and much more.

But there is also this paragraph:

With a broad ecosystem of apps providing advanced AI features, users can do everything from check homework with AI Math Assistance in Goodnotes 6 to automatically enhance photos in Pixelmator Pro and removing background noise from videos using CapCut. Combined with Apple's Unified Memory Architecture, MacBook Air can also run optimized artificial intelligence models, including large language models (LLMs) and diffusion models for local image generation with high performance. In addition to on-device productivity, MacBook Air is cloud-enabled, allowing users to run powerful AI-powered productivity and creativity apps like Microsoft Copilot for Microsoft 365, Canva, and Adobe Firefly.

This more clearly describes a type of AI that Apple has not yet introduced other than as a platform for it. This is less important when it comes to server-side AI on the Internet.

Bottom line: Expectations for iOS 18 and WWDC 2024 are sky high. If we see more features like those that already exist from Apple, Wall Street won't be impressed. But if Apple has truly opened up new possibilities for generative AI as a category (and not just for Apple), well, then perhaps Munster's vision for growth can be realized.

Who knows, maybe we&# 8217 ; in June we'll all be creating Apple Vision Pro apps by talking to Siri.

Leave a Reply