Apple CEO Tim Cook opens WWDC 2024 in Cupertino, California, on June 10, 2024.
Source: Apple
The subject of best interest to analysts on Apple’s quarterly earnings call on Thursday was a product that is not even available to most people yet.
Apple Intelligence, the corporate’s forthcoming artificial intelligence system, could spur a fresh cycle of iPhone upgrades and hardware sales. But CEO Tim Cook and CFO Luca Maestri spent a great a part of the Q&A portion of the analyst call dodging questions on the pace of Apple’s rollout, whether the corporate is already seeing a sales boost from the service, and Apple’s cope with OpenAI to integrate ChatGPT into its software.
One query Cook was willing to partially address was concerning the company’s spending on AI servers. It’s a problem that is come up throughout tech earnings season, as investors attempt to gauge where firms are of their AI infrastructure buildouts and the way far more is coming.
Cook acknowledged on the decision that costs are on the rise. He gave similar comments to CNBC.
“Embedded in our results this quarter is a rise 12 months over 12 months in the quantity we’re spending for AI and Apple Intelligence,” Cook told CNBC’s Steve Kovach on Thursday.
Apple reported $2.15 billion in payments for property, plant and equipment within the June quarter, up 8% quarter-over-quarter and about 3% from a 12 months earlier. A few of those capital investments aren’t for AI, but for other Apple operations.
The rise in Apple’s capital expenditure is tiny in comparison with its mega-cap peers, akin to Microsoft, Google, and Meta. Those firms are spending huge sums to construct and equip AI-focused data centers with Nvidia chips.
For instance, within the June quarter, Microsoft reported $13.87 billion in capital expenditures, in keeping with FactSet, which is a 55% year-over-year increase. Alphabet’s expenses jumped 91% to $13.19 billion, while Meta’s capital expenditures rose 31% to spent $8.3 billion throughout the quarter.
Meta CEO Mark Zuckerberg has explained this spending surge in game theory terms. He said the chance of missing out on the generative AI boom is larger than the downside of spending an excessive amount of on graphics processors and servers. Zuckerberg also desires to be certain that Apple won’t fully control the following major technology shift, if it seems to be AI.
“I actually think all the businesses which can be investing are making a rational decision,” Zuckerberg said on a Bloomberg podcast last week. “Since the downside of being behind is that you just’re out of position for like crucial technology for the following 10 to fifteen years.”
Apple is playing a special game.
Unlike Amazon, Google and Microsoft, Apple doesn’t have a cloud business that involves renting out infrastructure to other firms. Meta is not in that business either, but the corporate is investing in training its own open-source large language model, and in using AI to power its massive advice engine.
Apple revealed this week in a technical paper that it rented cheaper Google TPUs in relatively small quantities, not Nvidia chips, to coach its Apple Intelligence models. On Monday, the corporate released the primary version of Apple Intelligence, its suite of AI features that can improve Siri, mechanically generate emails and pictures and kind notifications. But it surely’s currently only available for developers to check.
Because it builds out its infrastructure, Apple has the advantage of getting designed its own chips, each for its phones and servers, so the corporate doesn’t need to spend billions of dollars on third-party processors.
Apple has a “hybrid” approach to data centers that pushes a few of its capital expenditures onto its partners, and turns them into operating expenses for Apple.
“On the CapEx part, it is vital to do not forget that we employ a hybrid sort of approach where we do things internally and we now have certain partners that we do business with externally where the CapEx would seem of their respective businesses,” Cook said on the decision with analysts.
Considered one of those partners is OpenAI, whose ChatGPT technology will probably be integrated into iOS later this 12 months. OpenAI rents Nvidia GPUs from Microsoft, its primary investor. Apple also rents cloud capability from providers including Amazon, Google, and Microsoft.
Apple declined to speak about the small print of the OpenAI agreement on Thursday, describing them as confidential. But Cook left open the chance that there could possibly be monetization opportunities.
Apple’s quarterly results topped estimates on Thursday, with sales rising 5% to $85.8 billion. The stock ticked up lower than 1% in prolonged trading.
WATCH: Still questions around how Amazon will benefit from AI
