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Apple’s AI plans: All you need to know

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Following the company's quarterly earnings release, Tim Cook emphasized that Apple will soon be able to discuss specifics regarding its AI plans

For most of the last 18 months, Wall Street analysts have questioned Apple CEO Tim Cook about the company’s artificial intelligence (AI) initiatives, despite complaints that the manufacturer of iPhones had no compelling AI narrative to offer.

Following the company’s quarterly earnings release, Tim Cook emphasised that Apple will soon be able to discuss specifics regarding its AI plans.

In an interview with Reuters, Tim Cook stated, “We continue to feel extremely confident about our opportunity in generative AI and we’re making large investments,” adding that the business has invested USD 100 billion in R&D over the previous five years.

During the same period, Apple’s Big Tech competitors have invested as much, if not more, in R&D, but they have also been aggressively investing in the construction of data centres that would house artificial intelligence services.

In the last quarter, Microsoft spent USD 14 billion on capital expenditures (capex), with Google, a subsidiary of Alphabet, following closely at USD 12 billion. In April 2024, Meta Platforms advised investors to anticipate capital expenditures of up to USD 40 billion this year.

Apple has a distinct way of thinking. For the entire year 2023, it invested slightly more than USD 10 billion in capital.

With its shares down 10% due to investor concerns that the business was lagging in the artificial intelligence race, Apple—which generates the majority of its revenue from the sale of consumer electronics—has paid a premium for that position for most of this year.

Although investors have baulked at the exorbitant costs of data centres and specialised processors needed to train AI models, shares of Meta, Google, and Microsoft, all of which generate revenue from software and advertising services, have all surged to all-time highs as the companies compete to dominate the emerging artificial intelligence landscape.

Apple signalled that it would not adopt the same strategy. Chief Financial Officer Luca Maestri stated that although Apple is anticipated to introduce new AI capabilities at its annual software conference and revamp its product lines with chips that are suitable for artificial intelligence, investors shouldn’t anticipate a significant shift in the way the company manages capital expenditures.

In response to a query from an analyst, Maestri cited Apple’s established policy of dividing the cost of tool production with its suppliers, which has allowed the company to maintain low costs and strong cash flow for more than ten years.

Maestri remarked, “On the data centre side, we do something similar. We use third-party capacity in addition to our data centre capacity. We intend to stick to this paradigm moving forward because it has historically worked effectively for us.”

That may be just as well for Apple, as it’s still uncertain if AI features like chatbots that operate directly on a device will encourage consumers to purchase new laptops, tablets, or phones—which continue to be Apple’s main sources of income.

Better processors might be a “line in the sand” for some customers who want AI technologies for professional use; although Ben Bajarin of Creative Strategies noted that these characteristics might not spark a sales boom.

It won’t be a super cycle, but it will assist increase sales, according to Ben Bajarin.

“You must exercise caution in lowering your standards,” he concluded.

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