Apple shares fall as OpenAI deal sparks Elon Musk’s iPhone threat

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

On Tuesday morning, investors changed their minds, sending Apple shares up 6% to $205 per share, they reported Forbes.

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

Apple’s deal with OpenAI has infuriated 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 breach.” CNBC reported.

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

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

What is Apple Intelligence?

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

  • Proofread and imagine 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;
  • Allow users to create movies from photos by writing a description;
  • Clean up photos by removing distracting background images;
  • Reduce hacking risk by processing user requests on iPhone instead of in a data center;
  • Operate the Service on an Apple managed cloud service using Apple semiconductors; And
  • Route user requests that Apple cannot process to ChatGPT.

Apple will also revive the languishing Siri. The voice assistant does not recognize “different requests” and cannot talk because it follows every single command Time wrote.

Siri remembers the context of a user’s request and reuses information in an image for a text application, Apple said. For example, “If someone asks about the weather at Muir Woods National Monument and later asks to plan a hike there, Siri now knows that the hike they are planning is in Muir Woods,” says the Time reported.

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

Big Tech partnerships aim to prevent generative AI disruption

Apple’s high-profile deal with OpenAI highlights the difference between the rise of dotcom and generative AI.

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

Instead, established companies are working with each other to avoid falling behind – and hoping to generate additional revenue.

Partnerships are generally fraught with risks. Their success depends on strong interdependence and the correct distribution of investments, revenues, operating costs and activities.

OpenAI’s collaboration with Microsoft now seems to be working well. Still, Microsoft is paying the bulk of the software giant’s $13 billion investment in cloud services to train and operate ChatGPT. Semafor.

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

While the financial terms of Apple’s partnership with OpenAI are unclear, the partnership appears to favor OpenAI over Apple. How come? Open AI will have access to 2.2 billion Apple wearable devices log reported.

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

Meanwhile, Apple isn’t bringing much new to this party. The iPhone is a 17-year-old product with sales declining 10% in the first quarter of 2024, according to the company.

To me, slightly upgrading Siri doesn’t seem like a reason for users to buy new Apple devices.

Meanwhile, Musk could cost Apple future device revenue. After all, according to him, he has 171,000 employees Nova Richeand 186 million followers on X, Exploding topics reported.

Musk’s anger over Apple’s partnership with Open AI led him to threaten to ban Apple devices from his companies. If Apple “integrates OpenAI at OS level,” Musk will ban Apple devices, CNBC reported.

Apple responded to Musk by saying that its proprietary AI is the standard and that OpenAI is an optional feature. In response to a message from Cook, Musk said he would block Apple devices unless Cook decides to “stop this scary spyware.” CNBC noted.

Will Apple Intelligence Accelerate Apple’s Revenues?

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

One analyst considers Apple Intelligence to be extremely important. “This is the biggest event for investors since the iPhone, as they need to integrate AI into their products to thrive,” Gene Munster, managing partner at Deepwater Asset Management, told the newspaper. Time.

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

Other analysts see the new technology encouraging users to keep their existing devices longer, reducing Apple’s revenue.

“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,” KeyBanc analysts said in a note to customers showing was in a Investing.com report.

Another analyst expects the OpenAI partnership to slow Apple’s revenues. The deal could initially be “revenue dilutive,” Bernstein analysts said Investing.com. Revenue sharing could hurt Apple’s revenue returns given “a potential migration from traditional search,” Bernstein added.

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

Apple’s shares are lagging behind rivals that have benefited from generative AI. Since November 2022, Nvidia shares are up 770%, while Microsoft shares are up 93%. This compares unfavorably with Apple’s relatively slow 48% increase in market value since then.

Despite Tuesday’s gains, Apple Intelligence isn’t a reason to buy the company’s stock.

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