Apple could win the generative AI race — here's why it won't

Unlike its “Magnificent Seven” peers, Apple (AAPL) – Get Free Report remained conspicuously quiet about any efforts it’s been making in the generative artificial intelligence space throughout 2023. Where just about every other Big Tech mega-cap corporation dove all-in on AI in what has been referred to as the “AI arms race,” Apple avoided even saying the phrase in public.

That doesn’t mean, however, that Apple isn’t working on developing the technology. Bloomberg reported in July that the tech giant was busy developing an AI model called Ajax; an October report revealed that the company was on track to spend $1 billion annually on generative AI products.

Apple’s AI plan, according to Bloomberg, is to incorporate AI into as many of its apps as possible, starting with Siri. Deepwater Management’s Gene Munster thinks Apple will unveil its progress in the space at its developer conference in June.

And when Apple does finally throw its hat into the generative AI ring, Munster doesn’t expect Apple’s product to be much better than the competition.

Analyst: Apple AI will fall in the middle

Apple, Munster told TheStreet, has access to a tremendous amount of unique, proprietary data. The availability of such data, especially in the wake of ever-increasing copyright lawsuits against AI companies, is becoming an even more important commodity.

Because of the availability of that data, Munster said that Apple “has the ability to have the best model.”

He doesn’t think they will, though, adding that it would be a “horrible outcome” for the Apple brand if the company chose to leverage user data to develop an AI model.

Apple’s privacy page states: “Privacy is a fundamental human right. It’s also one of our core values. Which is why we design our products and services to protect it. That’s the kind of innovation we believe in.”

Munster said that Apple’s position in terms of privacy will likely force the company to purchase third-party training data just like its competition. Indeed, Apple, according to The Information, is already exploring content licensing deals with media publishers.

Winning the AI game is a question of the uniqueness of the data, Munster said, and without tapping into its own proprietary data, Apple will “be in the game,” but it won’t be the best.

Performance vs Usability

But beyond the technical performance of the models is their usability. And Munster expects Apple to be on par with Google when it comes to the sheer number of people using their generative AI products.

ChatGPT, according to OpenAI CEO Sam Altman, is clocking about 100 million users a week. As of February, Apple reported a total of more than two billion active devices.

Enabling a generative AI Siri, Munster said, will give Apple a “huge advantage.”

“The average consumer doesn’t care that this is copying out to GPT-3.5 when GPT-4’s out. They care if can they hit a button and get what they want,” Munster said, likening his Apple AI expectations to the iPhone, which has “never been the best phone. It’s always been the phone that works best. I think that’s exactly what they’re going to do.”

Munster expects the stock to start getting credit from its coming push into AI sometime this year, likely in the wake of a potential June unveil.

He’s not alone in this perspective. Analysts at Morgan Stanley said in a recent note that they expect 2024 to be the year of Apple’s “Edge AI” opportunity.

“We believe that not only are fundamentals on the path to recovery (albeit with some near-term unevenness), but more importantly, 2024 will be the year when Apple’s ‘Edge AI’ opportunity likely comes to fruition.”

Shares of Apple are down more than 4% so far in 2024.

Contact Ian with AI stories via email, [email protected], or Signal 732-804-1223.

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