Apple (AAPL 0.95%), often celebrated for its sleek devices and robust ecosystem, might just be the most underrated player in the artificial intelligence (AI) space. Overshadowed by the AI initiatives of Microsoft and Alphabet, Apple has the potential to surprise investors with its own tech that it is reportedly working on. Here's a closer look at why investors shouldn't count out the stock as a potential AI play.
Apple is creating a chatbot of its own
ChatGPT and Bard are the big mainstream chatbots that consumers and investors are likely familiar with today. But AI is still in its early innings, and Apple plans to be a big player in the generative AI space. The company is reportedly working on Apple GPT, its answer to the current chatbots.
Knowing that it is behind its rivals, Apple is also willing to spend big to catch up and bridge the gap. A report from Bloomberg indicates that Apple plans to spend as much as $1 billion per year in its development of generative AI.
Why investors shouldn't count out Apple GPT
Apple's deep pockets indicate that the company could make a hefty investment in generative AI. While $1 billion in annual spend may seem like a lot, it's a relatively modest sum for Apple.
Over the past four quarters, the company has generated $101 billion in free cash flow. The company can easily funnel a lot more into the development of a chatbot and integrating AI into its existing products and services.
An advantage Apple has over its rivals is that it can take the time to learn from their mistakes, which often come as a result of being first movers into a new space. Apple doesn't need to be a first mover in AI because it already has a strong and loyal customer following; there isn't an overwhelming need to attract and bring in new users. And by learning from its competitors' mistakes in AI, the company can deliver a better end product.
While that doesn't guarantee success for Apple's generative AI, it does put the company in a great position to succeed. Its rivals may have an early lead, but that may not be sustainable in the long run, particularly if Apple focuses on safety and data privacy -- key areas of concern for companies and individuals using chatbots today.
It could be a while before Apple starts to benefit from AI
The downside for Apple consumers and investors is that it may take some time before Apple GPT and other AI-powered products and services become available. Jeff Pu, an analyst who covers Apple, believes the earliest that consumers will see AI infiltrate the iPhone and iPad could be late next year. That's a fairly long time given that both Microsoft and Alphabet have already begun rolling out AI into their products and services.
However, an announcement detailing its AI initiatives could come much earlier for Apple. With more than 2 billion active devices in the world, the company has a massive network of users that it can still tap into once it gets its AI products and services up and running. Although it doesn't want to miss out on this major opportunity, the Mac maker also doesn't need to be in a huge rush, either.
Is Apple a good stock for AI investors to buy?
Apple isn't leading the charge with respect to AI, but the days of the company being a first mover in any space are likely long gone. Nowadays, the iPhone giant's focus is more strategic and calculated, which can pay off in the long run if Apple is able to come out with more polished products and services, as it normally does.
For AI investors, Apple could be an underrated buy right now. AI-enhanced iPhones, iPads, and Mac computers could be what's needed to excite consumers and lead to an uptick in demand. With a mammoth user base, AI could be a huge growth catalyst for Apple for years to come. Although the stock may not be as popular of an AI play as its rivals are these days, Apple can still prove to be a great AI stock to own in the long run.
As long as you're willing to be patient with the company, Apple shares may be worth buying today, as AI could give the business even more room to grow.
