Apple's Cautious AI Strategy Gains Traction Amid Industry Disruption

Can Apple's Future Be Redefined by On-Device AI? | Investing.com UK

Without a doubt, the Big Tech is still fumbling with the AI rollout. Alphabet's Gemini AI was so embarrassing that Elon Musk described its inner workings as "'insane racist, anti-civilizational programming clear to all'. Microsoft's Copilot struggles with integration, as October's Gartner survey showed that employees overwhelmingly struggle to integrate it into their daily routines. Most recently in January, Amazon's AI chief Rohit Prasad told FT that AI confabulation is "still an open problem in the industry". Apple (NASDAQ:AAPL) is no stranger to AI hallucinations as the company halted its AI-generated news alert feature mid-January. This caused some concern, as Apple Intelligence is supposed to be one of the main premium features to draw in more customers. This was evident by the AI focus on "Pro", starting from iPhone 15 Pro and Pro Max onward. In December's SellCell survey, users were largely dissatisfied, with 73% saying the AI feature doesn't add much value to the iPhone experience. Nonetheless, AI development is rapid and likely to improve. With the released iOS 18.3 update and macOS Sequoia 15.3 on January 27th, Apple enabled AI features by default, minus the aborted news summary. Now that DeepSeek optimizations are on the open-source table, more space is open for Apple to offer on-device AI. Although Apple is perceived to be late to the AI game, the fact is that everyone is still on the same AI confabulation boat. But it seems there was wisdom in Apple waiting for the AI dust to settle. While Microsoft (NASDAQ:MSFT) relies on fine-tuned OpenAI's large language model (LLM), and Meta (NASDAQ:META) leverages open-source Llama, Apple has been working on Multimodal Large Language Models (MLLMs), starting with MM1 as pre-training research phase. MM1 variants can reach up to 64B parameters, emphasizing image interpretation and the mix of text and image data. This makes sense, as Apple Intelligence would primarily utilize the phone's hardware. It is also notable that Apple bought DarwinAI startup, which focuses on smaller, more cost-efficient AI models. So far within Big Tech, Apple has spent the least on AI annually, only ~$10 billion in 2023, or about $20 billion from 2019 to 2024. However, Apple's spending seems to follow a more holistic approach, starting from the new M5 chip that utilizes TSMC's cutting-edge 3nm node (N3P) process. Alongside M5, these more efficient chips will process AI tasks complementary to cloud processing, with Apple's first server AI chip created in partnership with Broadcom (NASDAQ:AVGO). Code-named Baltra, these server chips for AI workloads should come online by 2026. This is the hardware baseline for on-device generative AI. DeepSeek's optimizations represent software baseline, which Apple can use free of charge. After all, DeepSeek-R1 has an MIT licence permissive for commercial use, modification, distribution and private use. In other words, it turned out that Apple was correct to adopt a wait-and-see approach instead of going all-in like Meta, Alphabet (NASDAQ:GOOGL) and Microsoft. And while Apple can integrate DeepSeek and DeepSeek-like models on its own terms, Microsoft pays for OpenAI's services. Even before the ChatGPT-instigated AI hype, Apple invested in the long game. This started with 2017's A11 Bionic chip on iPhone X, specifically designed for co-processing machine learning (ML) algorithms. The aforementioned M5 is a massive upgrade from that Neural Processing Unit (NPU), aimed to enhance image recognition, on-device ML, voice recognition, natural language processing, translation and other AI-tasks. By their very nature, such tasks are inherently best-conducted on-device. Not only is the processing faster (without server lag and congestion), but Apple can provide privacy. Presumably, as users utilize AI tasks over time, the on-device AI would improve even more, all with the privacy in mind that Apple users expect. Moreover, if AI tasks and features have to be done real-time, it is ideal to have low-latency work independent of cloud infrastructure. Suffice to say, this on-device AI approach should give Apple a significant competitive edge as both Alphabet and Microsoft rely on their expensive cloud infrastructure. "If anything, DeepSeek's smaller model is more of a validation of Apple Intelligence since it will rely more heavily on a local on-device AI approach increasingly based on edge technology," Thomas Husson, Forrester VP principal analyst to Fortune magazine But until Apple's AI server chip goes into production, and until AI confabulation is near-zero, users will have to be satisfied with Apple's partnership with OpenAI. Unsolved technical problems with AI's reasoning have given Apple pause, and rightfully so. But in the meantime, Apple has been paving the road for more cost-effective AI models to complement the company's upcoming hardware. In the meantime, although Alphabet's smartphone share is miniscule, the company unrolled Pixel 9 phones with Google's Tensor G4 chip, which appears to be "falling behind competitors" and Gemini being as unreliable as ever. It is also uncertain if Alphabet can overcome its ideological capture problem, which may cripple its AI-training efforts. On the other hand, Apple's serious on-device AI competition is likely to come from Samsung (KS:005930) and Chinese manufacturers. Huawei aims for Q1 2025 for its AI-optimized 910C chip. Given that DeepSeek is China-born, it may be the case that Chinese phone makers end up winning the AI race long-term. This is one of the main reasons why USG ramped up export controls so drastically just before President Trump's inauguration. ***

The DeepSeek News Makes Apple's Artificial Intelligence Strategy Look Genius | The Motley Fool

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 0.32%) long-term growth, its more cautious (and less expensive) approach is beginning to look brilliant. 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. 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. 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.

Apple stays cautious on AI as DeepSeek's budget model shakes up the industry

TL;DR: As DeepSeek's low-cost AI disrupts the industry, OpenAI and Google rush to adapt -- while Apple sticks to its patient, long-term strategy. The AI landscape has been in flux since DeepSeek's R1 model shook the industry in late January. While OpenAI and Google aggressively push new AI tools and models, Apple has remained patient, a strategy that could pay off long-term. Four months later, this deliberate approach appears justified. Few could have anticipated that DeepSeek would build a competitor to OpenAI and Google on a budget of just $6 million - turning the entire market on its back. As a result, both OpenAI and Google have been forced to alter their business models and release offerings cheaper, and faster, to maintain their market share. In contrast, Apple has been very conservative with its feature rollout. A recently leaked memo from Apple's AI chief John Giannandrea reveals that Apple is prioritizing a revamp of Siri's core infrastructure and improvements to its in-house AI models rather than racing to release new tools. While OpenAI and Google push frequent updates, Apple is focused on long-term AI development, with its next major LLM advancements reportedly not arriving until iOS 19.4 in 2026. Apple's AI Chief, John Giannandrea (Credit: TechCrunch) Apple's cautious strategy positions them to effectively adapt to the changing tide. As tarrifs are introduced, and the cost of producing AI models decreases, so do business models. Microsoft, Google, Meta Platforms, and Amazon, all plan to increase their investments in AI to the sum of a combined $215 billion. However, if any more groundbreaking innovations occur, perhaps it will be cautious investors like Apple, or smaller, emerging AI players that will reap the benefits.