On September 9, Apple Inc. (AAPL) unveiled the iPhone 16, a device aiming to revolutionize user experience with advanced AI capabilities. With features like message sorting, writing suggestions, and an upgraded Siri, the iPhone 16 is powered by the latest A18 chips, boasting a 30% speed improvement over its predecessor.
Despite the groundbreaking technology, the announcement received a lukewarm response. Google searches for iPhones remained flat, media coverage was sparse, and investors showed little enthusiasm, leaving Apple’s stock unchanged.
Why the lack of excitement? Apple has traditionally been perceived as trailing behind in the AI race. However, this perception overlooks Apple’s strength: perfecting technology for widespread adoption. The real breakthrough is Apple’s decision to develop its AI in-house, positioning itself as a significant player in the AI landscape.
Building In-House AI: A Strategic Move
Apple’s commitment to building its own AI system is notable. While companies like Microsoft (MSFT) and Amazon (AMZN) rely on third-party AI systems, Apple’s in-house approach signifies a strategic investment in AI infrastructure. This move will require substantial investment in AI chips, benefiting chipmakers and setting Apple apart from competitors.
Training AI models is costly; OpenAI’s initial GPT-4 model reportedly cost $100 million, and Google’s Gemini Ultra almost twice that. Apple’s investment is expected to surpass these figures, reflecting the escalating costs of developing advanced AI models.
Moreover, the operational costs of running AI models are significant. OpenAI is estimated to spend nearly $7 billion annually on inferencing, with 95% of AI spending directed towards this. Apple’s commitment to AI will drive massive demand for both training and inferencing chips.
Beneficiaries of Apple’s AI Push
This investment will benefit companies like Arm Holdings (ARM), known for designing power-efficient AI chips essential for smartphones. Apple’s iPhone 16 will prioritize on-device AI processing, increasing demand for Arm’s A18 chips, which offer double the royalties of previous generations.
NVIDIA Corporation (NVDA), a leader in high-powered AI chips, will also benefit. Complex queries from the iPhone 16 will be processed in offsite data centers using NVIDIA’s chips, further solidifying NVIDIA’s market position. NVIDIA’s flagship H100 AI chip, for instance, completes tasks significantly faster than its competitors, justifying its premium pricing.
Market Implications
Apple’s AI integration is poised to trigger a supercycle of iPhone upgrades and mainstream AI adoption. This shift will also financially benefit the chipmakers critical to Apple’s AI strategy. NVIDIA, for example, remains a market leader with robust fundamentals, making it a valuable investment opportunity despite recent market fluctuations.
Conclusion
Apple’s iPhone 16 signifies more than just a new product launch; it marks a strategic shift towards in-house AI development. This move will not only enhance Apple’s product offerings but also drive substantial investments in AI chip technology, benefiting companies like Arm and NVIDIA. As AI continues to shape the future, Apple’s strategic investments position it—and its partners—at the forefront of this technological revolution.
