Apple is spending more on AI, but remains far behind its Silicon Valley peers

The
topic
of
greatest
interest
to
analysts
on


Apple’s
quarterly
earnings
call
on
Thursday
was
a
product
that’s
not
even
available
to
the
general
public
yet.

Apple
Intelligence,
the
company’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
good
part
of
the
Q&A
portion
of
the
analyst
call
dodging
questions
about
the
pace
of
Apple’s
rollout,
whether
the
company
is
already
seeing
a
sales
boost
from
the
service,
and
Apple’s
deal
with
OpenAI
to
integrate
ChatGPT
into
its
software.

One
question
Cook
was
willing
to
partially
address
was
about
the
company’s
spending
on
AI
servers.
It’s
an
issue
that’s
come
up
throughout
tech
earnings
season,
as
investors
try
to
gauge
where
companies
are
in
their
AI
infrastructure
buildouts
and
how
much
more
is
coming.

Cook
acknowledged
on
the
call
that
costs
are
on
the
rise.
He
gave
similar
comments
to
CNBC.

“Embedded
in
our
results
this
quarter
is
an
increase
year
over
year
in
the
amount
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
in
the
June
quarter,
up
8%
quarter-over-quarter
and
about
3%
from
a
year
earlier.
Some
of
those
capital
investments
aren’t
for
AI,
but
for
other
Apple
operations.

The
rise
in
Apple’s
capital
expenditure
is
tiny
compared
to
its
mega-cap
peers,
such
as


Microsoft,


Google,
and


Meta.
Those
companies
are
spending
huge
sums
to
build
and
equip
AI-focused
data
centers
with


Nvidia
chips.

For
example,
in
the
June
quarter,
Microsoft
reported
$13.87
billion
in
capital
expenditures,
according
to
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
during
the
quarter.

Meta
CEO

Mark
Zuckerberg
has
explained
this
spending
surge
in

game
theory
terms.
He
said
the
risk
of
missing
out
on
the
generative
AI
boom
is
larger
than
the
downside
of
spending
too
much
on
graphics
processors
and
servers.
Zuckerberg
also
wants
to
ensure
that
Apple
won’t
fully
control
the
next
major
technology
shift,
if
it
turns
out
to
be
AI.

“I
actually
think
all
the
companies
that
are
investing
are
making
a
rational
decision,”
Zuckerberg
said
on
a
Bloomberg
podcast
last
week.
“Because
the
downside
of
being
behind
is
that
you’re
out
of
position
for
like
the
most
important
technology
for
the
next
10
to
15
years.”

Apple
is
playing
a
different
game.

Unlike
Amazon,
Google
and
Microsoft,
Apple
doesn’t
have
a
cloud
business
that
involves
renting
out
infrastructure
to
other
companies.
Meta
isn’t
in
that
business
either,
but
the
company
is
investing
in
training
its
own
open-source
large
language
model,
and
in
using
AI
to
power
its
massive
recommendation
engine.

Apple

revealed
this
week
in
a
technical
paper
that
it
rented
cheaper
Google
TPUs
in
relatively
small
quantities,
not
Nvidia
chips,
to
train
its
Apple
Intelligence
models.
On
Monday,
the
company

released
the
first
version
of
Apple
Intelligence,
its
suite
of
AI
features
that
will
improve
Siri,
automatically
generate
emails
and
images
and
sort
notifications.
But
it’s
currently
only
available
for
developers
to
test.

As
it
builds
out
its
infrastructure,
Apple
has
the
advantage
of
having
designed
its
own
chips,
both
for
its
phones
and
servers,
so
the
company
doesn’t
have
to
spend
billions
of
dollars
on
third-party
processors.

Apple
has
a
“hybrid”
approach
to
data
centers
that
pushes
some
of
its
capital
expenditures
onto
its
partners,
and
turns
them
into
operating
expenses
for
Apple.

“On
the
CapEx
part,
it’s
important
to
remember
that
we
employ
a
hybrid
kind
of
approach
where
we
do
things
internally
and
we
have
certain
partners
that
we
do
business
with
externally
where
the
CapEx
would
appear
in
their
respective
businesses,”
Cook
said
on
the
call
with
analysts.

One
of
those
partners
is
OpenAI,
whose
ChatGPT
technology
will
be
integrated
into
iOS
later
this
year.
OpenAI
rents


Nvidia
GPUs
from
Microsoft,
its
primary
investor.
Apple
also
rents
cloud
capacity
from
providers
including
Amazon,
Google,
and
Microsoft.

Apple
declined
to
talk
about
the
details
of
the
OpenAI
agreement
on
Thursday,
describing
them
as
confidential.
But
Cook
left
open
the
possibility
that
there
could
be
monetization
opportunities.

Apple’s
quarterly
results
topped
estimates
on
Thursday,
with
sales
rising
5%
to
$85.8
billion.
The
stock
ticked
up
less
than
1%
in
extended
trading.

WATCH:

Still
questions
around
how
Amazon
will
take
advantage
of
AI