Apple Intelligence , Apple 's new artificial intelligence (AI) system , has the potential to boost iPhone upgrades and drive hardware sales.
However, CEO Tim Cook and CFO Luca Maestri spent much of a Q&A with analysts avoiding answering questions about Apple's growth rate, as well as whether the company has already started to see sales growth from its services and its partnership with OpenAI to integrate ChatGPT into its software.
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One question Cook was willing to answer in part was about the company's spending on AI servers. This issue has come up often during the season as investors try to assess the state of companies' AI infrastructure and future investments.
Cook acknowledged during the call that costs are rising. He made similar remarks on CNBC. “In our results this quarter, we see an increase compared to last year in spending on artificial intelligence (AI) and Apple Intelligence,” Cook told CNBC’s Steve Kovach on Thursday.
Apple said its property, plant and equipment payments totaled $2.15 billion in the June quarter, up 8% from the previous quarter and about 3% from a year ago. Some of those investments aren't related to artificial intelligence, but to other aspects of the company.
Apple's capital spending growth is limited compared to its major competitors, such as Microsoft, Google and Meta, which are investing huge sums to build and equip data centers focused on artificial intelligence in partnership with Nvidia.
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For example, in the June quarter, Microsoft reported capital expenditures of $13.87 billion, up 55% year-over-year. Alphabet’s expenses rose 91% to $13.19 billion, while Meta spent $8.3 billion, up 31% on its capital expenditures.
Meta CEO Mark Zuckerberg explained the increase in spending, saying that the risk of missing out on the opportunity for growth in artificial intelligence is greater than the risk of overinvesting in GPUs and servers. Zuckerberg also emphasized his desire to ensure that Apple does not completely control the next major technological revolution, if it turns out to be artificial intelligence.
“I think all companies that invest are making a sensible choice,” Zuckerberg said on a Bloomberg podcast last week. “Because the downside of being behind is you lose your place in the most important technology of the next 10 to 15 years.”.
Apple takes a different approach
Unlike Amazon, Google and Microsoft, Apple doesn't have a cloud business that involves renting infrastructure to other companies. While Meta doesn't engage in that activity, it is investing in training its own open language model and leveraging artificial intelligence to power the machine.
This week, Apple revealed in a white paper that it has been renting Google TPUs at lower prices and in small quantities, instead of Nvidia chips, to train Apple Intelligence models. On Monday, the company unveiled the first version of Apple Intelligence, a suite of AI features that will improve Siri, automatically create emails and images, and categorize notifications. For now, however, it is only available for testing by developers.
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As Apple develops its infrastructure, it has the advantage of designing its own chips, both for its phones and servers, which saves it from having to spend billions of dollars on third-party processors.
Apple takes a “hybrid” approach to data centers, shifting some of its capital expenditures to its partners and turning them into operating expenses. “When it comes to CapEx, it’s important to remember that we use a hybrid approach, where we do some things internally and we work externally with some partners, who will record the CapEx in their respective businesses,” Cook said on a call with analysts.
One of those partners is OpenAI, whose ChatGPT will be integrated into iOS later this year. OpenAI leases Nvidia GPUs from Microsoft, its main investor, while Apple also leases cloud capacity from providers including Amazon, Google, and Microsoft.
Apple declined to comment on the details of the OpenAI deal on Thursday, describing them as confidential. However, Cook hinted that there are opportunities for revenue generation.
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Apple's quarterly results beat expectations on Thursday, with sales rising 5% to $85.8 billion.
Source: cnbc
