Apple's AI Play: Integration and OpenAI (AAPL)

June 14, 2024

On Monday, June 10 Apple held its Keynote presentation during its weeklong Worldwide Developer Conference (WWDC).

Apple (AAPL) unveiled a plethora of new features coming to updates across the Apple ecosystem including interface customization, messaging changes, iPhone mirroring, and more.

However, as we highlighted last week, the most anticipated announcement was Apple's plan to integrate AI.

AI Takes Center Stage:

The anticipation was justified, as the company unveiled Apple Intelligence, its proprietary AI system.

Apple Intelligence aims to transform the Apple ecosystem, bringing new tools and features like writing enhancement, email sorting, phone call transcripts, image and emoji generation, photo editing, and an enhanced Siri.

Apple Intelligence's access to personal data and its ability to interact with apps provide a never before seen level of AI integration, exposing one of the largest consumer bases to the advanced technology.

Apple's partnership with OpenAI was also officially announced bringing ChatGPT access for certain features like Siri and Writing Tools (goodness knows Siri needs it).

But its integration with GPT also brought forth a potential headwind...

Privacy in the Spotlight

One major concern surrounding Apple Intelligence is privacy.

Apple has long championed privacy and security in its products and services. However, the deep integration of AI, particularly with ChatGPT, has sparked worries about data access and privacy. Elon Musk expressed his discontent and blocked Apple for all users on X.

Recent reports have revealed that Apple is not paying OpenAI for it's integration of ChatGPT, and is instead offering exposure to Apple's vast user base.

However, during the keynote address, Apple briefly mentioned that all data will be kept on device and only sent to larger models on external severs when absolutely necessary, and only held for the duration of the request. This falls under Apple's new Private Cloud Compute system. ChatGPT will serve as a third party tool that Apple users will have access to, as well as providing optional computing power. Apple is likely to add other third party AI such as Google's Gemini.

Apple vs. Microsoft

Microsoft and OpenAI have an existing agreement allowing Microsoft's Copilot AI to integrate ChatGPT technology while using their data centers to power ChatGPT. Microsoft (MSFT) is also one of the largest OpenAI investors. With Apple Intelligence expanding access to ChatGPT, it is likely to benefit Microsoft as they support OpenAI infrastructure.

Apple managed to top Microsoft as the most valuable company in the world Wednesday morning, though returned back to second place by market close.

Elon Musk has also fueled speculation over an X phone. Musk, a co-founder of OpenAI, poses a to be a potential competitor along with xAI's Grok program.

Will AI Boost Apple's Bottom Line -- or Bust it?

As mentioned in last week's vault post, Apple's iPhone sales have underperformed the past two years. While iOS 18 is coming to the past 6 generations of iPhones, Apple Intelligence on iPhones will only be available for iPhone 15 Pro and Pro Max devices, which were released just eight months ago.

Apple Intelligence is also coming to Mac and iPad devices though the oldest compatible models date back to 2020, reducing the pressure on consumers to upgrade immediately.

We'll be watching to understand if Apple's new features being limited to the newest models will stimulate a strong upgrade cycle and boost sales across its ecosystem, particularly for the iPhone.

Or if privacy concerns will hinder AI progress.

The bar for Apple is extremely high.

Keep a close eye on consumer happiness -- this will be most telling.

Want deeper insights? Get Free Access to The Vault.


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