Apple (AAPL, Financial) stock finished lower on Tuesday as it kicked off its brand-new Apple Pay Later service, just a day after it launched Apple Music Classical. The two new services have a lot of potential despite the lukewarm reception from investors. The payment service and classical music phone app have been in the works for quite a while, so the launches weren't expected to be much of a needle-mover to begin with.
As Apple doubles down on expanding its services, the market seems to be shrugging off the efforts. Services are great margin enhancers for Apple, but let's not ignore the elephant in the room. Everybody in the market wants to hear more about artificial intelligence (AI). Specifically, we want to know how Apple plans to respond to new innovations such as OpenAI's ChatGPT.
Microsoft (MSFT, Financial), Alphabet (GOOG, Financial)(GOOGL, Financial) and even Adobe (ADBE, Financial) have been shedding light on their generative AI innovations of late in order to play off the ChatGPT hype. Thus far, Apple has been quiet on the topic; normally, when it comes to emerging nascent technologies, they have to prove themselves as big money-makers before Apple reveals its own hand. As Microsoft and other big tech companies begin to monetize their impressive generative AI offerings, I expect Apple could step up to the plate soon. Indeed, Apple is a secretive company that focuses on how software and hardware can help enrich the experiences of its customers, but a closer look at the company revals potential places where AI innovation might emerge.
What can we expect from Apple on the AI front?
A part of the reason Apple's keynotes are so exciting is that the innovation behind the new products it showcases tends to delight and awe. Sadly, recent Apple unveilings have been spoiled by the numerous leaks. Still, Apple manages to charm customers with features that the leaks may not have picked up on.
In any case, it's unclear as to what Apple's plans are for AI just yet, but there has long been talk that Siri could use a significant upgrade. Though there may be hurdles to transforming Apple's AI assistant into something that's more like ChatGPT, other platforms have already added voice processing capabilities to ChatGPT, so it's not a stretch to image that Apple could build an AI chatbot that talks back.
There's also a lot of great AI powering Spotlight. Further, Apple's wearable AI (like fall detection) helps to save lives. However, people don't really talk too much about the magic that powers these innovative features. That's because Apple likes to leverage technology in a way that's more natural to its users and their everyday lives.
Make no mistake - Apple is already innovating on the AI front. It's just that the public focus is on chat bots right now, which causes some misconceptions. We also don't know what's going on behind the scenes. In many ways, ChatGPT may be the tip of the iceberg for consumer-facing AI.
Apple doesn't tend to launch consumer products if they're not polished. When it comes to new product launches, the company knows it has its reputation on the line. As such, Apple does everything possible to ensure a smooth reveal.
In any case, I doubt Apple is asleep at the wheel regarding generative AI. The company has been working with other forms of AI for many years. It's only recently that markets have gotten so excited about its potential.
I still prefer Microsoft for now
For now, Microsoft is still my go-to AI play. I like Apple's potential, but Microsoft is the one in the spotlight right now. It's gradually rolling out OpenAI innovations across its Bing platform.
Indeed, Bing has become a search engine that's no longer possible to ignore. And it's not just Bing AI available through the Bing app. OpenAI's DALL-E 2 software was quietly rolled into Bing as an image generator app. It seems that Bing is becoming less of a search app and more of an AI super app that could tilt the tides in its favor.
Super apps, which are apps with multiple functionalities, are big in Asia, but they haven't really taken off in North America. Bing could change this as it introduces new, exciting features from the portfolio of OpenAI.
Still, I'm not counting Apple out. It's seldom a first mover into new markets. As Microsoft and others test the water, Apple will be behind the scenes, waiting for its big opportunity to arrive where it can generate maximum profits on its AI ventures.
Final thoughts
Apple stock doesn't have a lot of the AI hype built into it yet. I think Apple deserves some AI premium, even if we know little to nothing about what's coming down the pipeline. At a forward price-earnings ratio of just 26.2, Apple still seems too cheap in my opinion.
