News of a new artificial intelligence (AI) large language model (LLM) in China that could rival OpenAI's ChatGPT and other top LLMs in North America has some tech investors worried. That's because DeepSeek's LLM was developed on a shoestring budget (reported at around $6 million) and its bargain cost is a fraction of the billions that big tech companies spent to develop their own LLMs. The worry is that, if quality LLMs can be developed on the cheap, perhaps spending on AI has been too aggressive and wasteful.
Those are valid concerns, and DeepSeek's news has some (including me) wondering if this will be yet another example of tech companies rushing to overspend on the next big growth opportunity, only to scale back later and then be forced to make cuts.
One big tech company, however, may have the right strategy when it comes to AI. While AI can play a big part in Apple's (AAPL +0.37%) long-term growth, its more cautious (and less expensive) approach is beginning to look brilliant.
NASDAQ: AAPL
Key Data Points
Apple is taking it slow and steady
When compared to some of its peers, Apple has been relatively slow in bringing to market new AI features (or as the company calls it "Apple Intelligence") for its products, especially the iPhone. While AI-compatible iPhones are now available, many of the AI features that will set them apart won't be available until later this year.
Consumers may even be disappointed in the current models since there aren't any remarkable game-changing capabilities (so far) to spark a strong need to upgrade. For instance, Apple's Siri assistant was upgraded and is better at listening to prompts, and it's also easier to activate Siri by just double-tapping the phone screen. AI can summarize notifications, allowing users to quickly stay on top of messages and emails. It's not really a game-changing advancement.
Apple device owners can also use ChatGPT, but only if they want to because Apple has focused on privacy and keeping data safe. With privacy concerns being raised about DeepSeek and its ties to China that have multiple countries investigating it and potentially banning it, Apple's more cautious approach looks to be the right one.
Less risk of overspending can ensure profits remain strong
Apple is expected to spend roughly $10.8 billion on capital expenditures this year. That's nowhere near the $80 billion that rival Microsoft is looking to spend just on AI this year. Meta Platforms is also aggressively investing into AI, and it projects that its capital spend will be at least $60 billion in 2025.
The danger with such heavy spending is that the payoff may not be there, particularly if there's a slowdown in demand. Technological research company Gartner previously projected that 30% of generative AI projects may be abandoned by the end of this year because it may be difficult to justify the costs.
And now, with President Donald Trump looking at imposing tariffs on multiple countries, rising costs could exacerbate the need for businesses to re-evaluate their expenses related to AI projects, including whether they are necessary. By keeping expenditures low, Apple can ensure it can maintain a high level of profitability. And that can be crucial in allowing the stock, which trades at 36 times its trailing earnings, to rise higher as its profits continue to grow.
Long-term investors shouldn't hesitate to buy Apple stock
Apple may not have an exciting LLM chatbot for investors to rally around, but by taking a more cautious approach with its AI strategy, the company could be in the best position to succeed in the long run, and the least likely to have to scale back or cut costs due to overspending.
The company doesn't need to rush to innovate, and by taking a slow-and-steady approach to AI, it can allow first movers to take on the risk that comes with being aggressive out of the gate. With a user base that includes more than 2.2 billion Apple devices in the world, there's inevitably going to be strong demand for any AI-powered Apple products.
And by waiting, Apple can ensure it keeps its costs down while it lets other tech companies develop new AI features, which can help it decide what to focus on in the future -- and what not to waste money on.
Apple is a great stock, and the company's levelheaded approach to AI proves why it's an investment worth hanging on to for the long haul.
