Apple’s quarterly earnings call on Thursday drew significant interest from analysts, particularly about a product yet to be released to the public: Apple Intelligence, the company’s forthcoming AI system. This system has the potential to drive a new wave of iPhone upgrades and hardware sales. However, CEO Tim Cook and CFO Luca Maestri were notably evasive when questioned about the rollout pace, sales boosts from the service, and the company’s partnership with OpenAI to integrate ChatGPT.
Tim Cook did confirm that spending on AI servers is on the rise, a recurring theme in recent tech earnings discussions. Investors are keen to understand where companies stand in their AI infrastructure development and future spending plans. Cook stated, “Embedded in our results this quarter is an increase year over year in the amount we’re spending for AI and Apple Intelligence.”
Apple reported $2.15 billion in payments for property, plant, and equipment in the June quarter, an 8% increase from the previous quarter and a 3% rise year-over-year. While some of these investments aren’t directly related to AI, the overall increase is minor compared to tech giants like Microsoft, Google, and Meta. In the same period, Microsoft’s capital expenditures surged 55% to $13.87 billion, Alphabet’s expenses soared 91% to $13.19 billion, and Meta’s expenditures climbed 31% to $8.3 billion.
Meta CEO Mark Zuckerberg explained this spending surge in terms of game theory, emphasizing the risk of missing out on the generative AI boom. He stated, “The downside of being behind is that you’re out of position for the most important technology for the next 10 to 15 years.”
Apple is approaching AI development differently. Unlike Amazon, Google, and Microsoft, Apple doesn’t have a cloud business renting out infrastructure. Instead, Apple uses a “hybrid” data center approach, outsourcing some capital expenditures to partners, thereby converting them into operating expenses. This strategy involves partners like OpenAI, whose ChatGPT technology will be integrated into iOS later this year. Apple also rents cloud capacity from Amazon, Google, and Microsoft.
Despite increased spending, Apple’s AI investments are modest compared to its competitors. The company has opted to rent cheaper Google TPUs rather than Nvidia chips to train its Apple Intelligence models. This week, Apple released the first version of Apple Intelligence for developers, featuring improvements for Siri, automated email generation, and enhanced notification sorting.
Apple’s quarterly results exceeded expectations, with sales rising 5% to $85.8 billion, and the stock saw a slight uptick in extended trading. However, Apple’s cautious and cost-effective approach to AI development shows it is still trailing its Silicon Valley peers in the AI race.