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Apple Stock Dips As OpenAI Deal Prompts IPhone Threat From Elon Musk

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Apple’s efforts to narrow its artificial intelligence gap with rivals by partnering with OpenAI did little to move Wall Street. The iPhone maker’s stock price fell about 2% in Monday after-hours trading.

Tuesday morning, investors changed their mind — sending Apple stock up 6% to $205 a share, reported Forbes.

“Apple Intelligence” — the term repeated about 60 times at Apple’s June 10 Worldwide Developers Conference, according to the Wall Street Journal — features a partnership with OpenAI’s ChatGPT. It aims to breath new life into Siri, Apple’s aging voice assistant.

Apple’s deal with OpenAI has enraged Elon Musk, who threatened to ban Apple devices from his companies — namely Tesla, SpaceX, and X. Why? On June 10 Musk called the Apple/OpenAI deal “an unacceptable security violation,” CNBC reported.

Apple sees good times ahead. “We think Apple Intelligence is going to be indispensable to the products that already play such an integral role in our lives,” CEO Tim Cook said in his presentation, the Journal noted.

Apple — which suffered a 4.3% revenue decline in the March 2024-ending quarter — needs new growth to revive its stock. Investors are not convinced the announcement will supply the needed revenue. Many analysts see the OpenAI deal as further reducing iPhone demand.

What Is Apple Intelligence?

Apple Intelligence aims to add generative AI technology to billions of iPhones. The system will “result in a major upgrade for Siri,” according to the New York Times. The Times reported Apple’s technology would perform tasks such as the following:

  • Proofread and suggest what users write in emails, notes or text;
  • Prioritize messages and notifications;
  • Answer user questions, create images and write software code;
  • Check whether a rescheduled meeting would overlap with a user’s family commitments;
  • Summarize audio recordings;
  • Enable users to create movies from photos by writing a description;
  • Clean up photos by taking out distracting background images;
  • Reduce hacking risk by processing user requests on the iPhone rather than at a data center;
  • Operate the service on an Apple-controlled cloud service using Apple semiconductors; and
  • Divert user requests Apple can’t handle to ChatGPT.

Apple will also revive the languishing Siri. The voice assistant fails to recognize “various requests” and is unable to converse because it follows each individual command, the Times wrote.

Siri will remember the context of a user’s request and repurpose information in an image for a text application, Apple said. For example, “If someone asks for the weather in Muir Woods National Monument and later asks to schedule a hike there, Siri will now know that the hike it is scheduling is in Muir Woods,” the Times reported.

Siri will also help people fill out forms faster. How so? The assistant will find “an image of a user’s driver’s license” and extract the information to fill it out a form on the user’s behalf, the Times wrote.

Big Tech Partnerships Aim To Avoid Generative AI Disruption

Apple’s buzzy deal with OpenAI highlights the difference between the dot-com and generative AI booms.

During the dot-com boom — when 2,888 companies went public — startups were disrupting incumbents. Since November 2022, when OpenAI launched ChatGPT, there have been no generative-AI related IPOs, according to my new book, Brain Rush: How to Invest and Compete in the Real World of Generative AI.

Instead, incumbents are partnering with each other to keep from falling behind — and hoping to add incremental revenue.

Partnerships are generally full of risk. Their success depends on a strong mutual dependency and the right division of investment, revenue, operating costs, and activities.

OpenAI’s partnership with Microsoft seems to be working well now. Yet, most of Microsoft’s $13 billion investment pays for the software giant’s cloud services to train and operate ChatGPT, noted Semafor.

Because OpenAI is so dependent on Microsoft, the two companies could ultimately go their separate ways as the ChatGPT provider becomes more self-sustaining.

While the financial terms of Apple’s partnership with OpenAI are unclear, the collaboration seems to favor OpenAI over Apple. How so? Open AI will get access to 2.2 billion handheld devices from Apple, the Journal reported.

OpenAI could monetize this by sharing revenue — such as the $20 per month the company charges for subscriptions to ChatGPT Plus, Techopedia reported.

Meanwhile, Apple is not bringing much new to this party. The iPhone is a 17-year-old product whose revenues fell 10% in the first quarter of 2024, according to the company.

Upgrading Siri slightly does not strike me as a reason for users to go out and buy new Apple devices.

Meanwhile, Musk could cost Apple future device revenues. After all, he has 171,000 employees, according to Nova Riche, and 186 million followers on X, Exploding Topics reported.

Musk’s rage at the Apple/Open AI collaboration prompted him to threaten to ban Apple devices from his companies. If Apple “integrates OpenAI at the OS level,” Musk will forbid Apple devices, CNBC reported.

Apple countered Musk by saying its own AI is the default and OpenAI is an optional feature. In response to a post from Cook, Musk said he would bar Apple devices unless Cook decides to “stop this creepy spyware,” CNBC noted.

Will Apple Intelligence Accelerate Apple’s Revenues?

Analysts have expressed mixed views about whether Apple’s announcements will result in faster revenue growth.

One analyst sees Apple Intelligence as hugely significant. “This is the biggest event for investors since the iPhone because they have to infuse A.I. into their products to thrive,” Gene Munster, a managing partner at Deepwater Asset Management, told the Times.

“Today was about showing that they will make A.I. a core competency and that they can deliver an A.I. experience that consumers want,” Munster added.

Other analysts see the new technology encouraging users to hold on to their existing devices for longer — thus crimping Apple’s revenues.

“We will all get new iPhones at some point in the future, but we believe consumers will hold onto their devices longer to save money given the lack of compelling features,” analysts at KeyBanc said in a note to clients featured in an Investing.com report.

Another analyst expects the OpenAI partnership to slow Apple’s revenues. The deal could be “revenue dilutive initially,” Bernstein analysts said, according to Investing.com. Revenue sharing could eat away at Apple’s top-line returns given “some possible migration from traditional search queries,” Bernstein added.

Apple Intelligence is bad news for iPhone revenue and the company’s stock price, according to a fourth analyst. “The lack of a game changing AI product intro/software suite is likely a negative for [near-term] iPhone demand as well as investor sentiment,” analysts at UBS said, according to Investing.com.

Apple’s stock has lagged rivals who have capitalized on generative AI. Since November 2022, Nvidia stock has risen 770% while Microsoft shares increased 93%. This compares unfavorably to Apple’s relatively slow 48% gain in market value since then.

Notwithstanding Tuesday’s gains, Apple Intelligence is not a reason to buy the company’s shares.

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