Apple (NASDAQ:AAPL) has yet to make its move in artificial intelligence and Apple stock is suffering for it. Shares were $165 before its most recent earnings announcement. Those numbers weren’t great. Sales and net income were both down slightly. A $110 billion buyback and a 25 cent/share dividend, the stock still rose, trading above $183.
It’s now down just $4/share from where it started the year, at $181/share. Microsoft (NASDAQ:MSFT), which recently passed it to become the world’s most valuable company, has extended its lead to $250 billion.
The great growth story of the 2010s is now just another value stock. Is this ever going to change?
Boring Into Apple Stock
Based on its May 7 iPad announcements the answer is no.
A thinner model, a better screen, and an electric pencil won’t move the needle. Reporters were reduced to commenting on CEO Tim Cook’s sneakers.
Apple has tried to evolve the iPad into a PC replacement, but it’s not working. Let’s not even start about the Vision Pro headset, now being pitched as a business tool.
Based on all this, why did I recently buy more Apple stock?
Waiting for WWDC
The reason will be announced June 10 at its Worldwide Developer Conference. That’s when we expect to hear Apple’s vision for AI.
There are already some hints. Project ACDC will put Apple AI chips in its data centers, with manufacturer Taiwan Semiconductor (NYSE:TSM) already on the case.
The new chips will work on AI inference, answering questions from AI data rather than training the data itself.
This tells me Apple will focus on what’s now called “AI PCs,” performing intelligent tasks on clients rather than just servers. But rather than put AI on your desk, where the Mac is less relevant by the day, Apple will put AI into the iPhone.
Apple is all about interfaces. The key iPhone interfaces for AI right now look to be the Siri voice assistant and its messaging app. Expect the WWDC announcements to focus on software, like its Dynamic Island alert service and messaging.
Building AI into its entire product line, including the Vision Pro and Watch, will give Apple a holistic approach to AI. Most users today live in a mixed reality of PCs and Android phones, of FitBit watches and Xbox game machines. This may be a chance to make some converts.
Apple is talking to Alphabet (NASDAQ:GOOG) (NASDAQ:GOOGL) about using its Gemini models in the cloud, but will build the interfaces and client software itself. Developers will then be let loose to build applications, and final hardware decisions will be seen in September at the iPhone 16 launch.
The Bottom Line
AI is upending the tech market like nothing since the Internet itself. But most analysts are still defining it based on the current paradigm of client, server, and cloud.
History says this is a mistake. Most leaders of the early Internet boom don’t exist today. It was of course the Cloud Czars who won the game, investing in the behind-the-scenes infrastructure needed to bring the 1990s’ promise to market.
That’s what all the Cloud Czar investors now fear, including those of us in Apple. Will AI be something you talk to? Will it be an application or an app like everything is now? Or will it be something immersive like the sci-fi of the 1980s?
Truth is, we don’t know. This latest iteration of the Great Game is just starting, and not all of today’s industry leaders will make it through. But I’d rather bet on an expert in interfaces. I want one with plenty of cash to invest in figuring things out.
The time to get in on this opportunity is before it is realized, in the calm before the storm.
As of this writing, Dana Blankenhorn had a LONG position in TSM, AAPL, and MSFT. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
