Wedgewood Partners Examines Apple’s AI Plans and Future Impact ($AAPL)
Investment Highlight: Apple and AI
Wedgewood Partners provides an in-depth analysis of Apple’s AI initiatives and their potential impact on the company’s future.
Business Overview
- Apple announced its AI initiatives at the Worldwide Developer’s Conference (WWDC) in mid-June 2024.
- The company has rebranded “artificial intelligence” as “Apple Intelligence.”
- Apple has been involved in AI for years, with examples like fall detection and crash detection in Apple Watch.
Competitive Advantages
- Ecosystem and Halo-Effect: Apple’s key competitive advantage remains stronger today than in 2005.
- Customer Retention: New customers entering the Apple ecosystem tend to stay for years, purchasing an expanding list of hardware products and software services.
- Apple Store: Acts as a “Digital Ellis Island” for people entering the digital world.
- New Customer Acquisition: Consistently high percentages of new customers across product lines (Mac, iPad, iPhone, Apple Watch).
Apple Intelligence Overview
- Personalized, user-approved access to data within email, messages, and photos, enhanced with generative AI content.
- Integration of OpenAI’s ChatGPT into Apple’s operating systems, notably Siri.
- On-device processing across software products including Mail, Notes, Pages, Safari, Voice Memos, and Photos.
Future Developments and Strategy
- Hardware Requirements: Latest Apple silicon and increased on-device memory for AI capabilities.
- Collaborations: Potential partnerships with AI providers like Alphabet and Anthropic.
- Silicon Prowess: Apple’s semiconductor design superiority is expected to play a crucial role in AI development.
- Edge Devices: Focus on silicon developments within Apple’s “edge” devices (iPhone, Mac, iPad) and Apple Cloud.
Market Position and Growth Potential
- Bloomberg reports Apple plans to ship at least 90 million iPhone 16s in the latter half of 2024, a 10% increase over prior launches.
- Apple is positioned to allow consumers access to AI through various providers, reinforcing its ecosystem lock-in.
Market Commentary: The Magnificent Roaring ’20s
- The “Magnificent Seven” AI-related technology companies continue to dominate market performance.
- Top six stocks make up 31% of the S&P 500 Index and 50% of the Russell 1000 Growth Index.
- Over $30 trillion invested in passive index-related funds and ETFs.
- NASDAQ 100 market valuation doubled from $12 trillion in Q1 2023 to $24 trillion in Q2 2024.
AI Investment and Market Dynamics
- Concerns about returns on massive AI investments by companies like Alphabet and Meta Platforms.
- $330 billion poured into 26,000 AI startups over the past three years.
- Potential for a “reset” once GPU stockpiles are large enough that demand decreases.
- OpenAI’s revenue growth to $3.4 billion, highlighting the gap between OpenAI and other AI companies.
Closing Thoughts
- AI is likely to be the next transformative technology wave.
- Declining prices for GPU computing could benefit long-term innovation and startups.
- The road ahead for AI adoption is expected to be long, with industry adoption not yet matching Wall Street hype.
- Wedgewood Partners maintains a focus on companies delivering value to end users in the AI space.
Click here for the full pro investor letter.
Disclaimer: The information provided in this blog post is for informational and educational purposes only and does not constitute financial, investment, or other professional advice. The content is based on a third-party investor letter and does not represent an endorsement, recommendation, or solicitation to buy or sell any particular security or investment product mentioned.
Investing involves risk, including the potential loss of principal. Past performance is not indicative of future results. Investors should carefully consider their investment objectives, risk tolerance, and financial situation before making any investment decisions. It is strongly recommended to conduct thorough research and due diligence, and to consult with a qualified financial advisor or professional before making any investment decisions based on the information provided in this blog post or the referenced investor letter. The author of this blog post and the owners of this website are not responsible for any investment decisions made by readers and disclaim any liability for any actions taken based on the content presented herein.
