Apple Inc. (NASDAQ: AAPL) is leveraging artificial intelligence (AI) advancements to enhance user experiences and drive innovation.
A recent demonstration by OpenAI, showcasing the power of virtual assistants and multi-modal AI on smartphones, has sparked excitement among investors.
This demonstration not only highlights the potential for developers to create groundbreaking apps but also underscores Apple's position as a leader in AI integration. As Apple continues to explore new avenues for growth and differentiation, investors are closely watching how these developments will shape the company's future trajectory.
The Apple Analyst
BofA Securities' analyst Wamsi Mohan maintained his Buy rating on Apple stock with price target of $230 a share. The target price implies a 23.5% upside from the time of review.
He recently shared key insights on Apple Inc., shedding light on the impact of OpenAI's latest developments on iOS and the implications for Apple stock investors.
The Apple Thesis
According to Mohan, the recent OpenAI demo showcased the potential for developers to leverage virtual assistants, creating a myriad of innovative apps. While on-device functionality may be limited compared to cloud-based AI, there are various monetization opportunities such as ads and subscription fees.
Apple is expected "to be a net beneficiary of AI at the edge."
Disruptive Nature of AI
OpenAI's demo highlighted the capabilities of AI at the edge, particularly on Macs and iPhones, showcasing the seamless integration of voice, text, and images. This demonstration emphasized the potential for AI to enhance productivity significantly.
Mohan believes that Apple stands to benefit from GenAI at the edge, potentially increasing gross margins and driving momentum in Services.
The demo also illustrated real-time language translation, narration, and tutoring capabilities, mirroring the work of skilled professionals like translators and educators. This opens up exciting opportunities for developers to create AI-driven apps.
Mohan notes that while OpenAI may not follow Apple's licensing model with Alphabet Inc (NASDAQ: GOOG) (NASDAQ: GOOGL) dba Google, alternative monetization methods could be explored.
On-Device vs. On-Cloud AI
With OpenAI's GPT-4 model supporting up to 1 trillion parameters compared to GPT-3's 175 billion, the richness of the AI experience is best experienced on the cloud. However, on-device models can still handle a substantial number of parameters.
Apple's Siri currently uses a mix of on-device processing and offloading queries to Apple servers.
Investment Rationale for Apple Stock
BofA Securities maintains a Buy rating on Apple based on several factors:
- Anticipated strong iPhone upgrade cycle in F25 driven by Gen AI features,
- Higher growth in Services revenue,
- Increased margins from internally developed silicon,
- Continuing capital returns,
- AI features attract higher institutional ownership, and
- Manageable legal risks.
AAPL Price Action: Apple stock was trading at $186.85 a share at the time of publication.