ResearchThe Weekly (6/14)

The Weekly (6/14)

Jun 14, 2024

In the 13 years as Apple’s CEO, Tim Cook has created more value than just about any lead executive in history.

When he took over the hardware behemoth in 2011, Apple’s market cap was under $400 billion. Fast forward to today, and the company is worth over $3 trillion.

But as Tim Cook took the stage at Apple’s world-wide developer conference this week, investors had plenty of questions regarding his beloved business and whether the creative spark bequeathed by Apple’s Promethean co-founder Steve Jobs had finally sputtered out.

Slowing iPhone sales, which account for half of Apple’s revenues, and the company’s aloof response to generative artificial intelligence, have been the largest clouds hanging over the company and investors wanted answers.

Would the company come up with a generative AI strategy convincing enough to win over the skeptics? And could this be sufficiently compelling to reboot iPhone sales?

We think the answers to these questions appear to be: yes.

Apple’s market value is up around 10% since Cook took the stage and the company is hovering back close to the most valuable in the world after being passed by Nvidia and Microsoft. And, at least for now, it appears that the iPhone will not only survive, but could thrive in a generative-AI world.

The conference made it clear that Apple’s AI features will be able to run on the most-recent iPhone 15 Pro, and Macs with the latest M-series of Apple chips.

What's certain is that earlier models will not be powerful enough. That could provide impetus for owners of old devices to upgrade, reinvigorating the potential for a new iPhone super cycle (check: investor concerns regarding sales growth).

Instead of spending a fortune reproducing the touted large language models (LLMs) and vast infrastructure of its peers, Apple also announced plans to take a more tailored approach.

Its models will run on its own devices. When more compute is required, they’ll lean on their own data centers or the expertise of OpenAI in a deal that will send the most up to date ChatGPT services to the 3x6 inch main stage of the iPhone home screen.

In fact, reports have spread that Apple actually isn’t paying OpenAI a single dollar for those services and the deal is not exclusive.

So not only has Apple bypassed the expensive build out of GPU farms and LLM training, but they’re inheriting arguably the most impressive capabilities in AI for free, with the added flexibility to move on if a new service is better equipped.

The Apple ecosystem is so vast and their consumer moat is so big, that access was the only cost of entry (check: AI innovation).

For now, users are far less hyped up about generative AI than investors. The consumer use cases are not as obvious and outside of the chat interface, no one has really struck a chord just yet.

But as the saying goes, in the early days people wanted faster horses, not cars. The better generative-AI services become, the more users might be drawn to them.

Tim Cook provided a lot of answers this week but one last question remains: can Apple, the most beloved consumer technology company in the world, win not by being the first to embrace a technology, but by being the first to try to use it to light the consumer’s imagination?

It’s a playbook that has served the company well in the past and this time the prize seems even bigger than those that came before.

Have a great weekend,


– Your Titan team


Disclosures:

As of writing, AAPL, MSFT, and NVDA are holdings in Titan's Flagship strategy.

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