Artificial intelligence (AI) has been one of the biggest driving forces behind the current bull market.
In the 18 months since OpenAI released ChatGPT on November 30, 2022, S&P 500 A total of 33 percent has returned. The AI trend has been boosted by the announcements of Microsoft, Nvidia (NASDAQ: NVDA ), the alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL ), and virtually every other major tech company in the world. There is no doubt that the development of AI has come a long way in a relatively short period of time.
One company has remained relatively quiet when it comes to what it's working on, but management promised to “break new ground” in generative AI this year. And those major announcements could come in just a few weeks.
apple (NASDAQ: AAPL ) is set to unveil its AI development and partnerships at its annual Worldwide Developers Conference (WWDC) starting June 10.
Apple's AI ambitions are different from the rest of the tech giants.
Apple's brand is centered around data privacy and security. Thus, it will highlight the fact that most of its AI features will work on your personal devices.
According to a report by Bloomberg's Mark Gruman, Apple has built its own large language model capable of such features as summarizing missing notifications, providing a summary of a news article, or transcribing a voice memo. to do It will also improve existing features like automatically populating your calendar, suggesting apps and editing photos.
None of these features are particularly important in and of themselves. But the promise of more on-device AI capabilities down the road as Apple improves its LLM could be a bigger story. As AI features play an increasingly large role in our digital lives, the ability to keep data private and secure with on-device processing could be the next big step in AI, with Apple leading the charge.
In the meantime, though, Apple knows there's a huge demand for AI features it can't necessarily deliver with its current on-device capabilities. As such, it has struck a partnership deal with OpenAI to integrate some of its technology into the next iteration of iOS. It has also held talks with Google to use its Gemini model, but they have yet to come to an agreement.
Apple's secret weapon as it races to catch up in AI.
One of the biggest limiting factors in the development of AI technology is the need for computing power. Nvidia has a stranglehold on the high-end GPU market, and it can't make chips fast enough to keep up with demand. While this has been great for Nvidia's bottom line, it makes it prohibitively expensive for large tech companies to build data centers full of Nvidia GPU clusters.
Almost every major tech company currently using Nvidia chips for their AI data centers is developing their own chips to train large language models, including Microsoft and Alphabet. But developing sophisticated chips is difficult, and it takes a long time to develop them.
Apple is using its own chips in its AI data centers, saving it money and reducing the hurdles other big tech companies face when they buy Nvidia chips and print them themselves. Apple is currently using the M2 Ultra chips found in Mac Pro computers for its data centers. Next year, it could switch to the M4 chips found in the latest version of the iPad Pro released earlier this month. Its existing manufacturing relationships mean it can be much faster and more cost-effective in building data centers as it ramps up its AI efforts.
The fact that it's using the same chips to train its LLM as it uses in its own devices also bodes well for the future of on-device AI capabilities for Apple products.
What this means for investors.
It's unlikely that Apple will directly monetize many of its new AI features. Instead, the new capabilities could push a large portion of Apple's 2.2 billion user base to upgrade their devices. On-device AI capabilities may only be available on the latest hardware and encourage more device storage for all those AI-edited photos and videos.
The majority of iPhones in use in the United States are more than two years old, with nearly a third of users keeping their phones for three years or more. These devices are ripe for an upgrade, especially if Apple gives iPhone owners a little push. This could lead to an increase in sales for fiscal year 2025, which starts in October. New iPhone models are usually released in September.
Meanwhile, the latest AI capabilities built into the iPhone could open the door for developers to create new AI-powered apps. Apple could benefit by building what analyst Dan Ives is calling an “AI App Store.” AI-powered features, such as the circle-to-search found on Google's Pixel phones, can drive more traffic to search engines. And if that happens, Apple could see a nice boost to its services revenue. Apple gets a 36 percent cut of all Google search revenue on iPhones, Macs and iPads, court documents show.
AI could boost sales in two of Apple's biggest business segments in fiscal 2025. Next month's announcements may be just the beginning.
While shares are once again reaching new highs, the stock still looks attractive. Its forward price-to-earnings ratio nearing 30 may curb its appeal to some, but a premium price is justified by its massive share repurchase program, its current net cash position, and strong earnings. is justified by the long-term outlook for another period of growth. Next year and beyond.
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Suzanne Frey, an Alphabet executive, is a member of The Motley Fool's board of directors. Adam Levy has held positions at Alphabet, Apple and Microsoft. The Motley Fool has positions and recommends Alphabet, Apple, Microsoft and Nvidia. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a Disclosure Policy.
1 stock to buy before it breaks new ground in artificial intelligence (AI) next month was originally published by The Motley Fool.