1 stock to buy before artificial intelligence (AI) breaks new ground next month

Artificial intelligence (AI) has been one of the biggest drivers of the current bull market.

18 months after OpenAI launches ChatGPT on November 30, 2022 S&P 500 A total profit of 33% was achieved. The AI ​​trend has been accelerated by announcements such as: microsoft, nvidia (NASDAQ: NVDA), alphabet (NASDAQ: GOOG) (NASDAQ: Google), and almost every major technology company in the world. There is no doubt that AI development has advanced significantly in a relatively short period of time.

One company has been relatively quiet about what it’s currently working on, but executives have pledged to ‘break new ground’ in generative AI this year. And such a groundbreaking announcement could come in just a few weeks.

apologize (AAPL 1.66%) will finalize AI developments and partnerships at its annual Worldwide Developers Conference (WWDC) starting June 10. Here’s what investors can expect and how it could impact the stock.

Image source: Getty Images.

Apple’s AI Ambitions Differ from the Rest of Big Tech

At the core of the Apple brand is a focus on data privacy and security. This highlights the fact that most AI features operate on personal devices.

As Bloomberg’s Mark Gurman reports, Apple has built its own large-scale language model with features such as summarizing missed notifications, providing outlines of news articles, and transcribing voice memos. It also improves existing features like calendar auto-fill, app suggestions, and photo editing.

Neither of these features are particularly groundbreaking in and of themselves. But Apple’s promise to offer more on-device AI features in the future as it improves LLM could be a bigger story. As AI capabilities play an increasingly larger role in our digital lives, the ability to keep data private and secure through on-device processing could be the next step for Apple-led AI.

But in the meantime, Apple recognizes that there is huge demand for AI capabilities that current in-device features cannot necessarily deliver. Therefore, we signed a partnership agreement with OpenAI to integrate some of OpenAI’s technology into the next version of iOS. We have also been in negotiations with Google to use the Gemini model, but no agreement has yet been reached.

Apple’s secret weapon to catch up with AI

One of the biggest limiting factors in the development of AI technology is the need for computing power. Nvidia dominates the high-end GPU market and can’t make chips fast enough to keep up with demand. This has been a huge boost to Nvidia’s bottom line, but it’s also very expensive for large enterprises building data centers full of Nvidia GPU clusters.

Almost all of the big tech companies that currently use Nvidia chips in their AI data centers are developing their own chips for training large-scale language models, including Microsoft and Alphabet. However, developing cutting-edge chips is difficult and it takes a long time to manufacture them.

Apple is using its own chips for its AI data centers, saving money and reducing the potential for bottlenecks that other tech giants may experience when sourcing Nvidia chips and printing their own. Apple is currently using the M2 Ultra chip in Mac Pro computers for data center use. Next year, it may switch to the M4 chip installed in the latest version of iPad Pro released earlier this month. As we ramp up our AI efforts through our existing manufacturing relationships, we can be very quick and cost-effective in building our data centers.

The fact that the same chips used in the devices are being used for LLM training is also promising for the future of on-device AI features for Apple products.

What it means for investors

It’s unlikely Apple will be able to directly monetize many of its new AI features. Instead, the new features may cause a significant portion of Apple’s 2.2 billion user base to upgrade their devices. On-device AI features are only available on newer hardware and may require more device storage for all AI-edited photos and videos.

The majority of iPhones in use in the United States are more than two years old, and about one-third of users have had their phones for more than three years. These devices are perfect for an upgrade, especially if Apple puts a little pressure on iPhone owners. This could lead to a surge in sales in fiscal 2025, which starts in October. New iPhone models are typically released in September.

Meanwhile, the advanced AI capabilities built into iPhone could open up opportunities for developers to build new AI-based apps. Apple could make money by building what analyst Dan Ives calls an “AI App Store.” AI-assisted features like the circle search feature on Google’s Pixel phones can drive more traffic to search engines. And if that happens, Apple could see a significant increase in its services revenue. According to court documents, Apple is taking a 36% cut of Google’s total search revenue across iPhones, Macs and iPads.

AI could boost sales in the two largest segments of Apple’s business in fiscal 2025. Next month’s announcement could be just the beginning.

Although the stock is hitting new all-time highs again, the stock still looks attractive. A forward price-to-earnings ratio near 30 may deter some, but the premium price is justified by its large share repurchase program, existing net cash position, and long-term prospects for another period of strong earnings growth. Next year and beyond.