Jun 7, 2024

As Apple AI Arrives, Will Wall Street Buy It? 📧

'Apple Intelligence' is a good name, but it is a good narrative?

This year's WWDC feels more important than previous ones. Not because of any one thing Apple is going to announce – last year, of course, Apple unveiled the Vision Pro – but because of the shift happening around them. I speak, of course, of AI. As will Apple, a lot, starting on Monday.

The company is pretty much the last one on Earth to outline their AI strategy. Of course, that approach is nothing new for Apple. And I actually think being a bit slower here will help the company in the long run once again. But it's certainly not helping them right now. Not in the press. And not on Wall Street where they're in a battle with NVIDIA, the AI darling, for the position of second most valuable company in the world. The first, of course, is Microsoft. Why? In no small part thanks to their overall AI narrative.

But who cares about Apple's stock price? Well, a lot of people these days. It's one of the, if not the most widely held stock in the world. A lot rides on it, quite literally. From Berkshire Hathaway to mutual funds to index funds. Apple can say it doesn't matter, but it does. And that's why we're going to hear "AI, AI, AI, AI, AI, AI, AI" on Monday in a way that puts "5G, 5G, 5G, 5G, 5G, 5G" to shame.

And we're apparently going to hear about a few AI initiatives quite early in their development cycle – to the point where they won't ship until later this year – after iOS 18 itself ships – or next, as Mark Gurman has been reporting. The AI bits shipping with iOS 18 that have been reported so far sound pretty mundane. It's a lot of table-stakes AI stuff. Again, I think this makes sense for Apple. But will it be enough for Wall Street?

Part of the problem – a big part, I imagine – is that unlike Microsoft or NVIDIA, Apple doesn't have a direct path to monetize their AI initiatives. They don't sell cloud platforms in the same way that Microsoft and Google do. They don't sell chips in the same way that NVIDIA does. In a way, it's more like Meta, where they'll be using AI to augment their products. Wall Street doesn't like that narrative for Meta, even though they have a track record of monetizing such bets eventually. So again I ask, what will they think of Apple?

While you can bet that Apple won't be upselling AI functionality for their software and devices, at least some of these new capabilities are likely to need newer iPhones, iPads, and Macs. So it could bring forward upgrade cycles for folks interested in the latest and greatest with regard to AI. This is more or less what Microsoft, Qualcomm and the various Windows OEM partners are doing with the new 'Copilot+ PC' initiative as well.

There's also a slight wild card in the rumored OpenAI partnership because it's possible that you'll need a premium ChatGPT account to leverage all of those features. Might Apple help OpenAI upsell inside of iOS? I suppose it's possible, but it feels pretty unlikely as it feels pretty unlike Apple. If anything, Apple would probably negotiate a deal with OpenAI in such a way that they're effectively paying to upgrade everyone to the premium tier. But also, GPT-4o is now available on the free tier, so perhaps Apple just struck a deal to use that, and will pay to raise any limits as needed depending on usage.

Regardless, Apple will not be making a lot of money off of AI, and perhaps not any money off of AI. Certainly not directly. On the other hand, unlike Meta, Apple has already said that their AI expenditures will be smaller than their peer set thanks to partnerships. So again, we'll see what that OpenAI deal looks like. But maybe Wall Street is okay with Apple not boosting their top line with AI if they're not destroying their bottom line either.

Still, at the end of the day, Wall Street wants a narrative around growth. And Apple hasn't been providing much of one in the past few quarters with smartphone penetration nearing a ceiling in many of their key markets. And China being erratic at best. And the iPhone still being too expensive for the developing world. And the Vision Pro not having a clear path to impact the company's finances anytime soon. And the car project not having a clear path to impact the company's finances ever.

So we're left with Services – a segment under assault around the world with App Store changes being sought by governments left and right. And AI. AI. AI. AI. A... generative technology without a straight path to generate growth for Apple.

🍺

Enjoying a Brooklyn Pilsner (they love Brooklyn Brewery over here)

🌍

Sent from London, England

Briefly...

The 84-Year-Old Man Who Saved Nvidia – With NVIDIA now a $3T company, it's easy to forget that they, like Apple, were once near death in the 1990s. But it wasn't Microsoft who bailed them out – it was Sega. And in particular, Shoichiro Irimajiri, an executive there at the time. Even though NVIDIA's Dreamcast dream didn't pan out, Irimajiri stepped in with a lifeline to keep the company going. And boy have they... 🚀

Meta Revamped Facebook’s Feed to Win Back Younger Users – Kurt Wagner details what Meta did in the wake of the rise of TikTok to stop the bleeding with their younger user base and even turn it around. The answer? Letting go of friends and shifting to interests as the core cog of the algorithms. While it has made Facebook less useful to me – personally, my feed is well over half ads – it has given the youths something to actually do with the social network of old. 💸

Apple to Debut Passwords App in Challenge to 1Password, LastPass – Speaking of Gurman and iOS 18 scoops, it seems Apple is finally – and this is a legit "finally" – going to split out their password manager in Settings into its own app. It's undoubtedly not great news for the third-party services that do this, except that they can be cross-platform compatible and Apple won't be any time soon. But this also gives Apple another avenue through which to discuss and tout security. 🔓

⭕️ The Inner Ring ⭕️

The following are the columns sent to paid Spyglass subscribers this week – sign up here for full access and future emails...

Enter The Inner Ring

The work of humans is going to be more highly valued in the age of AI

Some thoughts on Apple's latest hardware ahead of WWDC

Quotable...

“We didn’t want to own the company. We wanted to hire some of the people who worked at the company.”

-- Brad Smith, Microsoft's president, when asked why Microsoft didn't simply acquire Inflection, the AI startup they totally didn't acquire.

Some Thoughts On...

🍺 The founder Chobani saving San Francisco's Anchor Steam Brewery

🎭 How Apple clearly messed up the whole Jon Stewart partnership

🔴 Qualcomm's decision to go Justin Long for their anti-Apple ad

🍪 Intel's increasingly precarious situation as it fights on all fronts

🕹️ Palmer Luckey's new device for retro gaming

🥽 Hey look, another use case for Vision Pro in enterprise...

Quickly...

Intel's Pat Gelsinger clearly hasn't been too thrilled about both the rise of NVIDIA and their rhetoric about the future of computing, so he fired back. Of course, no one will care until he can actually deliver.
- Speaking of Intel, it sounds like their and AMD's new "AI PCs" won't have all the Copilot+ PC features at launch? Another ouch.
Dollar Tree is looking to sell Family Dollar. The jokes are everywhere.
Meta is fixing some of the biggest issues with their Quest 3 headset, notably the passthrough mode looks a lot better. $3,000 better? Getting there! Maybe!
Boeing puts people into space! This is the first bit of good PR the company has had in years, it seems. The first Starliner mission wasn't perfect, and overall it took too long to get to this point, but good for them.
- Of course, SpaceX followed up the very next day by successfully launching their massive Starship into space and returning it to Earth mostly unharmed. The moon remains on target for 2026...
Glow-in-the-dark baseball! For real! It looks awesome and dangerous!
A pretty damning breakdown of Cathie Wood's performance in the market.
The story behind the Kelley Blue Book purely practical – it was created for a car dealership the family owned in Los Angeles – and interesting. Its creator, Bob Kelley, just passed away at age 96.
Researchers say that OpenAI's 'Sky' voice does indeed sound similar to Scarlett Johansson, but even more so like Anne Hathaway and Keri Russell!
Kevin Costner's Horizon is tracking to open at just $12M. Which, by some measures, would be $1M for every minute of applause at Cannes.
Gizmodo is being sold. Again. After being sold. Again.