Shares of Apple (NASDAQ:AAPL | AAPL Price Prediction) have actually been quite resilient of late despite the recent wave of turbulence that’s weighed far more heavily on other members of the Magnificent Seven, most notably those that are swinging for the fences on AI with a willingness to up the CapEx.
As high as the CapEx numbers already are, I certainly wouldn’t be surprised if they’re even higher next year. Just how much of a CapEx hike is priced in, though, remains the major concern that’s causing some to shy away from the mega-cap tech giants that led in the earlier part of the market’s bull run.
With Apple down around 8% from its all-time high, while some of its AI-heavy peers are now deep into a bear market, perhaps CEO Tim Cook and company were going it right from the get-go. Indeed, Apple may be in need of a correction to the upside as the market re-evaluates AI strategies for risk, while other Mag Seven names are being served up a vicious correction to the downside.
Who would have known that being “behind” in AI would be a source of a premium?
Apple wasn’t late to the AI party; I think its rivals were early.
With all the backlash over “AI slop” and some top AI beneficiaries looking to walk back from the AI, it’s not clear that Apple might be the “smart one” when it comes to AI strategies. At least that’s what Wedbush’s Dan Ives seems to think after praising the Cupertino-based giant for its approach.
While there’s profound potential behind AI, especially as agents become more capable while chatbots become less prone to hallucinations, there are certainly a lot of bugs that need to be squashed before the consumer-facing experience is in a state to provide immense value. In that regard, perhaps Apple’s greatest advantage lies in its stealth use of AI to actually improve the user experience.
Whether we’re talking about the useful AI features across Apple’s Creator Studio or some other behind-the-scenes (battery optimization) utilization, Apple seems to be on the right track when it comes to rolling out AI features.
I think Apple isn’t “behind” in AI; it’s just chosen to take its time to polish before rolling out, to prevent the kind of backlash that comes from force-feeding new technologies that might not enhance the user experience but might actually deteriorate it. After all, nobody wants to be force-fed technologies that might not add much value. Given that less than 15% of smartphone buyers actually buy a phone for its AI features, I’d say Apple has time on its side regarding AI.
In my view, Apple isn’t “behind” in AI; it’ll be right on time. And, what’s more, it might call the shots as to when it’ll be the right time. So, despite the recent AI delays, I still think Apple is wise to take its time to deliver an experience that adds value, rather than rushing a technology that might still be three-quarters baked.
The genius behind the Gemini partnership
Perhaps smartphone users couldn’t care less about AI features in phones because the integration isn’t quite there yet. In due time, though, Apple will get it right, and it could single-handedly encourage users to actually care about AI once it’s ingrained in the operating system.
For now, the Gemini partnership seems genius, not just because Apple is buying a spot in front of the AI line at a fat discount, I might add, but because it’s also focusing on what it actually takes to create an experience that might encourage users to buy a device because of AI features.
With agentics on the rise, trust, privacy, and transparency remain paramount. So, instead of reinventing the wheel, Apple might have what it takes to outsource much of the AI risk (in the form of AI overspend) to another firm (Google or OpenAI) while taking its time to build its platform with AI in mind.
So, could AI be the golden goose that helps fuel a run for a $5 trillion market cap?
I certainly think so. With Gemini aboard, Apple users are getting the best, and what’s more, Apple is keeping its options open as the AI scene matures.
Perhaps Apple can switch to its own model once it’s in a better spot later on to kick off a new services revenue stream, or maybe Google will be the one to pay Apple to keep Gemini as the default AI in the iPhone. Either way, Apple has an opportunity to sell devices thanks to improved AI features, while exploring ways to use the technology to jolt its services revenue stream in the future (Apple Intelligence+?).
In fact, Apple is already monetizing the tech by paywalling some of its most powerful AI features in some of its most popular apps (think Pages, Numbers, Pixelmator Pro, and more in the Creator Studio suite).
The bottom line
Either way, Apple doesn’t need to rush since the market doesn’t seem to be rewarding AI frontrunners with that much of a premium anymore. If anything, restraint might be the new premium and, with that, Apple deserves to trade at a premium to its heavier-spending peers.
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