Blogs -AI Could Be Apple’s Next Chapter

AI Could Be Apple’s Next Chapter


October 18, 2023

author

Beth Kindig

Lead Tech Analyst

This article was originally published on Forbes on Oct 13, 2023,05:15am EDT

After Nvidia added $750 billion in value this year on the backs of surging AI chip demand, investors are quickly searching for the next trillion-dollar AI winner. AI is the best investment opportunity of our lifetimes, and although Apple (AAPL) has been relatively overlooked as an AI play, the tech giant could quickly become a force to be reckoned with in the AI space. The reason for this is simple. Apple can bring AI to the consumer’s pocket by the billions, and is rumored to be sitting on one of the best AI models on the market today, with comparable performance to OpenAI’s ChatGPT.

Two Billion Devices to Lever AI

Apple’s installed active device base surpassed 2 billion last February and “reached an all-time high in every geographic segment” at the end of the June quarter, according to CFO Luca Maestri. The iPhone’s installed base also “grew to a new all-time high,” and is estimated to have nearly 1.5 billion active devices worldwide, after adding around 500 million active devices since 2019—an 11.4% compound annual growth rate since then.

Active iPhone Users Worldwide Chart

Source: I/O FUND

While installed active devices reached a new record, so did Apple’s subscriber base. CEO Tim Cook noted during Apple’s FQ3 report in August that the company hit an “all-time revenue record in Services” with “over 1 billion paid subscriptions,” which are growing at a double-digit rate. Apple has added more than65 million subscribers in the first half of this fiscal year and more than 300 million subscribers over the past two fiscal years heading into its fiscal Q4.

Apple Paid Subscription Chart

Source: I/O FUND

The opportunity for Apple to capitalize on AI arises from the combination of growth within Apple’s installed device base, along with increased engagement and adoption of paid subscriptions over time. Consumer interest in AI surged earlier in 2023 with ChatGPT garnering over100 million active users and more than 1 billion visits monthly. Apple’s installed base offers the chance to more than 10 times the number of individuals with readily available access to AI.

Sign up for I/O Fund's free newsletter with gains of up to 221% -Click here

Services Is Where AI Can Shine

Apple is witnessing a higher contribution from its services segment to both revenues and margins—the segment is approaching a $100 billion annual run rate, accounting for nearly 26% of revenue with a 70.5% gross margin.

In other words, services is contributing 41.1 cents to each dollar of gross profit, up from 34.6 cents just eight quarters ago. The segment has seen its contribution to gross profit increase steadily, rising 46% from 23.7 cents per dollar in FY18 to 34.6 cents per dollar to date in FY23. It is not out of the picture for services to soon contribute 50 cents of each dollar of gross profit as the segment surpasses $100 billion in annual revenue.

Services Segment Contribution to Gross Profit Chart

Source: I/O FUND

The importance of services to Apple’s bottom line cannot be overstated—that 70% gross margin level combined with its nearly $100 billion revenue scale has pulled Apple’s margins higher over the past few years and will likely continue to do so in the future as transacting accounts and paid accounts continue to grow to new all-time highs.

This is exactly where AI will have the most profound impact on Apple, and why the tech giant could emerge as a strong AI contender.

Google and Microsoft demonstrate the revenue potential of AI subscriptions at scale—for Microsoft’s Copilot, a 2.5% take rate of the ~382 million commercial Office 365 users would equate to nearly $3.5 billion in annual revenue, while a 10% take rate would see annual revenue reaching $14 billion, according to Macquarie.

In Apple’s case, it has nearly three times the paid subscription base as Microsoft that it could target with an AI product, via a stand-alone service or in one of its three pre-existing service bundles. Regardless of the route that Apple chooses, there remains billions in revenue potential. Offering a stand-alone AI subscription for $2.99 per month could rake in ~$10.8 billion in annual revenue at a 15% attach rate based on Apple’s more than 2 billion active devices, while boosting the prices of its subscription bundles could by $0.50 per month could add more than $5 billion annually.

Every Thursday at 4:30 pm Eastern, the I/O Fund team holds a webinar for premium members to discuss how to navigate the broad market, as well as various stock entries and exits. We offer trade alerts plus an automated hedging signal. The I/O Fund team is one of the only audited portfolios available to individual investors. Learn more here.

Apple Can Bridge the Gap with Mass-Market Consumer AI

Apple is spending millions of dollars per day in a quest to develop a conversational AI model, potentially for Siri, that would allow iPhone and iPad owners to use voice commands for automating multi-step tasks with the voice assistant. As such, Apple is uniquely positioned to both monetize and implement advanced AI in a mass-market consumer application.

Consumers, especially Millennials, are very willing to adopt and pay for such voice assistants that are as smart and as reliable as a human. According to a PYMNTS survey from April, more than 42% are willing to pay $10 or more per month for an assistant.

Although Apple is tight-lipped about the progress of its AI projects, the so-called Apple GPT chatbot is rumored to be more powerful than Open AI’s GPT 3.5 model, according to The Verge. Apple is spending millions of dollars a day training the large language model Ajax on more than 200 billion parameters.

The project could find life integrated within Siri, given the applications within automating multiple tasks and range of capabilities stemming from image and video recognition.

Apple GPT Projection

Apple's Apple GPT model is rumored to be more powerful than OpenAl's GPT 3.5, as well as Google's LaMDA, Meta's LLaMA and LLaMA 2, and Anthropic's Claude 2 model. - Source: I/O FUND

Apple noted back in 2020 that Siri had more than 25 billion requests made per month, a figure that could easily be increased with a ChatGPT-like chatbot installed across billions of devices. That is how Apple can be the first big stock in consumer driven AI uptake.

On Real Vision, I previously pointed out that “if you take a consumer-facing company like Google,” that they are in a good position because Google doesn’t “have to go out and try to get lots of consumers to adopt something new, consumers will continue to use Search, it’ll just be improved Search; advertisers will continue to use Google, it’ll just be improved ROI.”

For Apple, it’s the same case – it does not have to try to convert millions of users into a paid subscriber in the way that OpenAI does; rather, it could easily integrate an advanced conversational AI model within Siri for example, and quickly convert already-paying subscribers over to those AI services.

Damien Robbins, Equity Analyst at the I/O Fund, contributed to this article

The I/O Fund was early to AI with a 45% allocation in 2023. For more in-depth research from Beth, including 15-page+ deep dives on the 10 stock positions the I/O Fund owns, subscribe here.

Recommended Reading:

Gains of up to 485% from our Free Newsletter.


Here are sample stock gains from the I/O Fund’s newsletter --- produced weekly and all for free!

+370% on Nvidia

+485% on Bitcoin

*as of May 02, 2024

Our newsletter provides an edge in the world’s most valuable industry – technology. Due to the enormous gains from this particular industry, we think it’s essential that every stock investor have a credible source who specializes in tech. Subscribe for Free Weekly Analysis on the Best Tech Stocks.

If you are a more serious investor, we have a premium service that offers lower entries and real-time trade alerts. Sample returns on the premium site include 2583% on Nvidia, 806% on Chainlink, and 665% on Bitcoin. The I/O Fund is audited annually to prove it’s one of the best-performing Funds on the market, with returns that beat Wall Street funds.

beth

More To Explore

Newsletter

Amazon Building

Amazon Stock: Nearing $2 Trillion Club From AWS Growth & Ads Catalyst

Amazon is on the verge of joining the $2 Trillion Club, driven by a 4-percentage point accelerating in AWS to 17% YoY growth combined with strong 25% growth in advertising revenue.

May 21, 2024
Big Tech Logos

Big Tech Q1 Earnings: AI Capex Increases As AI-Related Gains Continue

Recent Q1 earnings releases from Microsoft, Amazon, Alphabet and Meta reaffirmed that AI spending is continuing to increase through 2024 as companies seek AI-related revenue gains.

May 14, 2024
The Risk is Higher in the Market than it Feels

The Risk is Higher in the Market than it Feels

In this report, we will show that the sentiment readings over the last several months suggest investors should be cautious. This is backed up by our broad market analysis, which indicates that risk is

May 02, 2024
We Are Raising Our Bitcoin Targets To $106K - $190K

We Are Raising Our Bitcoin Targets To $106K - $190K

Bitcoin is an asset where the bulls pound the table to “buy, buy, buy,” and the bears relentlessly and stubbornly call it a scam. In reality, both are the wrong approach. This is because although Bitc

April 26, 2024
Investing In AI with Beth Kindig: 1-Hour Video Interview

Investing In AI with Beth Kindig: 1-Hour Video Interview

Jordi Visser, CIO and Chairman of Weiss Multi-Strategy Advisers, spoke to Beth Kindig on the Real Vision podcast on March 20th, to dive deep into AI’s potential for explosive economic growth, how to f

April 19, 2024
https://images.prismic.io/bethtechnology/Zh50DEaI3ufuUONy_SemiconductorStocksQ4OverviewAIGainsHeatUp.jpg?auto=format,compress

Semiconductor Stocks Q4 Overview: AI Gains Heat Up

Semiconductor stocks are standout performers so far in 2024, with investor appetite for AI stocks remaining elevated as AI chip leader Nvidia continues its streak of high growth.

April 15, 2024
I/O Fund Catapults to 131% Cumulative Performance Due to Leading AI Allocation

I/O Fund Catapults to 131% Cumulative Performance Due to Leading AI Allocation: Official Press Release

I/O Fund, a tech research site that actively manages a real-time portfolio, announces returns of 57% in 2023 with a cumulative return of 131% since inception. This compares to popular tech ETFs that h

April 03, 2024
The Importance of Verified Returns and Risk Management for Retail Investors

Verified Returns & Risk Management: A Retail Investor's Imperative

Last year was a stellar year for investors – in 2023, the Nasdaq 100 rose 54% for its best annual return since 1999, while the S&P 500 gained 24%. The Magnificent 7 were the de facto leaders of this m

March 27, 2024
ARM Building

Arm Stock: AI Chip Favorite Is Overpriced

Arm Holdings is positioned to capitalize on the growing adoption of artificial intelligence (AI) technologies, leveraging its established licensing model and extensive ecosystem to drive future growth

March 26, 2024
Meta Building Picture

Top 3 Ad-Tech Stocks For 2024

Ad spending growth is widely forecast to accelerate in 2024, after a challenging macro environment significantly dented budgets and growth in 2023. The US advertising market is already showing positiv

March 18, 2024
newsletter

Sign up for Analysis on
the Best Tech Stocks

https://bethtechnology.cdn.prismic.io/bethtechnology/e0a8f1ff-95b9-432c-a819-369b491ce051_Logo_Final_Transparent_IOFUND.svg
The I/O Fund specializes in tech growth stocks and offers in-depth research for Premium Members. Investors get access to a transparent portfolio, a forum, webinars, and real-time trade notifications. Sign up for Premium.

We are on social networks


Copyright © 2010 - 2024
Get Free Weekly Analysis on the Best Tech Stocks