Tuesday, August 1, 2023

"Here's How Apple Could Win Big From AI" by BRENDAN MCDERMID, 1 AUGUST

 Apple (NASDAQ: AAPL) is the most valuable company in the world with a market capitalization of just over $3 trillion. It reached this position thanks to the terrific demand for its iPhones, iPads, and MacBooks over the years. But the company now needs something new to power its next phase of growth.

Apple's growth plateaued thanks to a weak smartphone market. The company's revenue in the first six months of the current fiscal year dropped to $212 billion (compared to $221 billion in the same period a year ago). The iPhone, which generated 55% of its revenue in the first half of fiscal 2023, saw a dip in sales.


There is a good chance that Apple can strike gold with its next generation of iPhones as a massive installed base of users will need upgrades and the company has strong pricing power. But the tech giant is also taking steps to diversify into new areas to accelerate its growth. One way it hopes to do that is by jumping intothe small but fast-growing market for mixed-reality headsets. There are also rumors that Apple is developing self-driving vehicles.


Now it looks like artificial intelligence (AI) is another segment Apple wants to tap to accelerate its growth.

Apple is reportedly developing a ChatGPT competitor

ChatGPT, OpenAI's chatbot, became a raging success after it was launched late last year (with significant funding assistance from Microsoft (NASDAQ: MSFT)). The generative AI-powered chatbot quickly built a big user base, reaching 100 million users within just two months of launch.

Microsoft was quick to capitalize on ChatGPT's popularity and introduced paid subscriptions for the service. Microsoft also deployed OpenAI's generative AI platform into services such as the Bing search engine and Microsoft Office applications. These moves could unlock a solid long-term opportunity for Microsoft in multiple areas.

The chatbot market is one of those opportunities considering the impressive pace at which it is expected to grow. According to a third-party estimate, the global chatbot market could generate $42 billion in annual revenue by 2032, clocking a compound annual growth rate of almost 24% over the next decade. For comparison, the chatbot market was worth just under $5 billion last year.


Not surprisingly, several companies -- both big and small -- are in a race to deploy AI-powered chatbots. Bloomberg's Mark Gurman recently reported that Apple is also in this race. According to Gurman, Apple is reportedly building an AI-powered chatbot to compete with the likes of ChatGPT. Gurman adds that the tech giant has already developed a large language model (LLM) to power its generative AI offerings, including the chatbot.


Apple won't say if it is indeed looking to jump into the generative AI market. But the rumor mill has gotten better in recent years at predicting the company's upcoming products. That suggests that Apple may indeed be on track to jump into this space.


Why AI could open a new growth frontier for Apple

It won't be surprising to see Apple actually move into the generative AI space. The chatbot market is expected to be huge in the long run. And chatbots are just one of the many applications that use generative AI technology. The overall generative AI market is forecast to grow 42% annually over the next decade and generate $1.3 trillion in annual revenue in 2032, according to Bloomberg Intelligence. So, it makes sense for Apple to accelerate its efforts to incorporate generative AI into its offerings, especially considering that other tech giants, such as Microsoft and Alphabet, have already made progress in this space.


Generative AI offerings like chatbots could nicely complement Apple's huge installed base of devices and unlock growth.

Apple CEO Tim Cook said in February that the company's installed base of devices, including iPhones, iPads, MacBooks, and other hardware offerings, now exceeds 2 billion units. So the company already has access to a huge user base that could adopt its generative AI offerings. If Apple charges a fee for the service, that would create a significant new revenue stream.


Microsoft and OpenAI, for instance, charge $20 a month for ChatGPT Plus. The paid ChatGPT subscription allows users to access the chatbot even during peak hours and provides faster responses to their queries. Paying users also get access to new features before others.

Apple could consider doing something similar with Siri, its AI-powered voice assistant, which is present on multiple devices ranging from iPhones to iPads to AirPods to the Apple Watch. Apple could use generative AI to make Siri smarter, using its large language models, and deploy the functionality in its productivity apps, such as Pages, Numbers, and Keynote, as well. If Siri can compose emails, create text such as essays, and write poems based on user prompts -- just like ChatGPT -- Apple could consider monetizing it.


There is no official word from Apple if it is indeed looking to move into this market. But don't be surprised to see the company integrate generative AI into its products going forward, as other big tech giants could steal market share from Apple if it doesn't step up its efforts in this area. Also, there is a huge incentive for Apple to accelerate its generative AI efforts as it already has a solid opportunity to monetize this technology and give its flagging growth a big shot in the arm.


https://www.nasdaq.com/articles/heres-how-apple-could-win-big-from-ai

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