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Has Apple Been Left Behind in the AI Race?

Apple’s been very quiet in the AI race but still manages to retain its mantle as the most valuable business in the world, refreshing its all-time high in June, and catching up with the animal spirit of market bulls, writes analyst Tina Teng.

10 July 2023

Apple’s most recent development is in new hardware, the mixed reality headset, which marked a new series of its products following the iPod, iPhone, MacBook, iPad and Apple Watch. But is the tech giant being left behind in the AI crowd?

Unlike other tech giants, Apple is a hardware-driven business. Its hardware sales, including iPhone, iPad, MacBook, Wearables, Home and Accessories revenue account for about 80 per cent of its total revenue. The core business is still in the development of hardware products, and its release of the mixed-reality headset is another milestone of its new product series following the Apple Watch in 2014.

CEO Tim Cook began talking about augmented reality in 2016 and has been going through years of build into the final product. Apple’s hardware has built-in AI technology from Siri, Face ID, and speech recognition to iPhone’s camera and battery charging optimisation. And all these functions were long developed before the ChatGPT-led AI technology.

As for development of prevailing big language model technology, Apple may take cautious steps towards its development as it seems to be involved in legal and technical issues. The leader of the generative AI, Microsoft has already adopted ChatGPT to its service products, including searching engine Bing, Azure cloud and Microsoft 365 Copilot. The same as Google, it has also showcased the generative AI-powered search engine, Bard.

However, all these cloud-running applications will eventually need to lay onto a hardware-supported ecosystem, which is Apple’s series of products. No-one else could compete with the tech giant. Another prominent advantage is that Apple has started making its own chips to replace reliance on third-party technology. Apple’s M2 processor for Mac is probably the most capable chip to run generative AI applications.

On Apple’s careers webpage, its “Machine Learning and AI” job descriptions focus on five areas:

Machine Learnings Infrastructure, Deep Learning and Reinforcement Learning, Natural Language Processing and Speech Technologies, Computer Vision, and Applied Research. This suggests Apple has plans for the generative AI’s development, which could be more on Siri-like user interactions, camera functions and image/video editing.

Notably, “Machine Learning and AI” is in third place on Apple’s careers webpage, following “Software and Services” and “Hardware”, which may suggest Apple is not in a hurry to join the AI hype among big techs. Its focus may now be on the service segment, which saw significant growth and this may offer generative AI technology a better platform for user experiences.

In Apple’s March quarter earnings reports, its service revenue, including monthly subscriptions, App Store, warranties and search licensing, grew 5.5 per cent year on year, the most in all the segments, while its core product, iPhone sales, only increased 1.5 per cent, mainly due to a rebound in China’s demands.

Apple’s service segment saw stable growth, despite macro headwinds in 2022. And its iCloud, Apple Music, and Apple card have huge potential to adopt generative AI technology to provide interactive artificial intelligence services.

- Tina Teng is Markets Analyst for CMC Markets APAC & Canada.

For breaking news, follow CMC Markets APAC & Canada on Twitter @CMCMarketsAusNZ

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