Over the past few years, it seemed that Apple (AAPL -1.83%) was unstoppable. The iPhone maker was a founding member of the $1 trillion club in mid-2018, and while the company has occasionally ceded its title as the world's most valuable company, if ever so briefly, Apple has always come roaring back, reestablishing itself at the top of the heap. The company was also a charter member of the $2 trillion club and saw its market cap briefly eclipse $3 trillion earlier this year, the first U.S. publicly traded company to surpass each of these benchmarks.
While it might seem unlikely that Apple's dominance is in jeopardy, recent advancements in artificial intelligence (AI) threaten to dethrone the iPhone maker, with a trio of technology companies poised to depose the once and future king, with the changing of the guard brought about by developments in generative AI.
Let's look at how we arrived at the juncture and what it means for the companies involved.
Image source: Getty Images.
Tapping the AI opportunity
The emergence of ChatGPT late last year set the tech world on fire. The next-generation chatbot developed a number of capabilities not previously possible, the most remarkable of which was to create original content from scratch. Further fanning the flames was Microsoft's (MSFT -3.21%) decision to invest $13 billion in ChatGPT's creator, OpenAI, while simultaneously integrating those advanced algorithms into its Bing search engine.
Microsoft's sophomore effort, dubbed 365 Copilot, offers users a laundry list of ways to increase productivity, which includes drafting emails, creating presentations based on existing data, and even writing and correcting computer code. Analysts at Macquarie Equity Research believe this could add as much as $14 billion in annual sales to Microsoft's coffers.
These moves set off a mad dash within technology circles, with each of the biggest tech companies scrambling to develop the large language models (LLMs) necessary to create their own generative AI systems.
Alphabet (GOOGL -2.03%) (GOOG -1.94%) was quick to roll out its Pathways Language Model (PaLM) LLM, which it boasted has the ability to "understand, generate, and translate nuanced text -- including idioms, poems, and riddles." This gave birth to Bard, its conversational AI service.
While its debut was marred by a factual error, Google quickly addressed the issue and introduced a flurry of product enhancements, infusing AI tools into Workspace, Google Docs, and Gmail, as well as into its Android and Pixel phones.
Even Amazon (AMZN -3.29%) jumped on the bandwagon. CEO Andy Jassy said Amazon is "reimagining" generative AI to fully tap the resulting opportunity, which will include helping its cloud customers train LLMs using their own data in a much more affordable way. Amazon will also help jump-start the use of chatbots or "conversational agents" customized for specific applications.
Each of the big three cloud providers has laid out plans to tap into the massive AI opportunity. Needham analyst Laura Martin suggests that these moves could propel the market caps of Microsoft, Alphabet, and Amazon above $3 trillion, saying, "Generative AI will redefine the basis of competition for media and internet companies."
"Not only do [Microsoft, Amazon, and Google's] LLMs have the lowest cost structures and first-mover advantages," she said, "but their average lifetime value per Cloud customer is about to skyrocket owing to the stickiness of apps built on their LLMs.
Martin went on to note that she expects these developments to play out over the coming 10 years.
At the same time, Apple's lack of a cloud computing platform prevents the company from offering these services -- but I wouldn't count the iPhone maker out, at least not yet.
The Apple of my eye
Until recently, Apple has been strangely silent on the issue, but that doesn't mean the company hasn't been working diligently behind the scenes on its generative AI strategy.
During the earnings call to discuss the results of its fiscal 2023 third quarter, ended July 1, CEO Tim Cook put to rest the notion that Apple was sitting idly by. "We view AI and machine learning as core fundamental technologies that are integral to virtually every product that we build," he said. "We've been doing research across a wide range of AI technologies, including generative AI, for years." Cook went on to point out that new generative AI tools would be coming to the new iPhone, but that Apple tended to "announce things as they come to market," adding, "that's our MO."
So while Apple may not have a cloud infrastructure service to peddle generative AI services, it does have more than 2 billion active devices worldwide. Reports suggest that Apple is working on its own generative AI platform, dubbed Apple GPT, according to a report by Bloomberg. That will provide the company with plenty of opportunities to benefit from the AI revolution.
A vast opportunity
To be clear, there's a certain advantage to being one of the world's largest cloud providers and selling AI solutions to a captive audience. But that doesn't mean it's the only way to benefit, and the market is vast.
Cathie Wood of Ark Investment Management has crunched the numbers and estimates that AI software could represent a $14 trillion market by 2030. That means there's plenty of opportunity for everyone.
Apple's history is rife with examples of taking the time to get things right before entering a market, and now is likely to be no different. It probably won't be long before a host of generative AI-infused tools and apps are coming to iPhones everywhere.
