"Siri, Who Cried and Laughed at Apple AI?" [Global Focus]

'Supercycle' Outlook: Apple Stock Surpasses $200 Per Share
MS Temporarily Reclaims No.1 Market Cap
Search Engine Weakness a Negative for Google

Apple unveiled its artificial intelligence (AI) strategy at the annual Worldwide Developers Conference (WWDC) on the 10th (local time), causing its stock price to surge, while the fortunes of major big tech companies diverged.

Apple's stock closed at $207.15 on the 11th, up 7.3% from the previous day. On the 12th, it reached $213.07, and on the 13th, $214.24, pushing its market capitalization to $3.285 trillion (approximately 4,535 trillion KRW), reclaiming the top spot in market cap for the first time in five months based on closing prices. Microsoft's (MS) market cap on the same day closed slightly behind at $3.282 trillion (approximately 4,530 trillion KRW). On the 17th, Apple lost the number one position to MS, closing at $216.67, up 4.18% from the previous trading day. MS closed with a market cap of $3.3324 trillion (approximately 4,605 trillion KRW), while Apple ended at $3.3224 trillion (approximately 4,592 trillion KRW).

'Latecomer' Apple’s Stock Rises on Supercycle Expectations

At WWDC, Apple announced plans to apply its AI system, ‘Apple Intelligence,’ across all devices including iPhone, Apple Watch, and Mac. Apple described it as an AI that understands language, images, behavior, and even context. Additionally, through a partnership with OpenAI, Apple integrated the generative AI ChatGPT-4o into its AI voice assistant, Siri.

Unlike competitors who unveil new AI technologies almost daily, Apple had been regarded as a ‘latecomer’ in AI, showing no clear vision until now. At the same time, the market showed high interest in Apple’s AI strategy, anticipating a ‘game-changing’ move.

Immediately after the announcement, opinions were mostly that there was "no innovation," as the products and services did not significantly differentiate from those previously announced by competitors. However, the mood shifted the next day as Wall Street analysts predicted a significant increase in device replacement demand for iPhones, iPads, and Macs equipped with AI. Since the AI features are only available on iPhone 15 Pro and Pro Max models released last September, this is expected to stimulate replacement demand among users of older or standard models, heralding a ‘supercycle.’

Morgan Stanley stated, "Apple’s AI features are the most differentiated consumer digital agents," and predicted that "the device replacement cycle will accelerate."

Michael Ng, a Goldman Sachs analyst, said, "Apple Intelligence is only available on devices with M1 chips or higher, such as the iPhone 15 Pro and Pro Max, so we expect strong upgrade demand starting with the iPhone 16 this fall."

Bank of America (BoA) forecasted that iPhone sales will reach 247 million units next year and 257 million units by 2026 due to AI effects.

Recently, Apple’s business environment has been challenging. Half of Apple’s revenue comes from smartphones, but overall smartphone sales have been sluggish, with sales in China?the largest market last year?declining due to patriotic consumption and economic recession.

According to market research firm IDC, Samsung Electronics ranked first in global smartphone market share in Q1 this year with 20.8%, thanks to strong sales of the AI-equipped Galaxy S24 series. In contrast, Apple’s market share was only 17.3%, with shipments down 9.6% year-on-year. Due to weak sales in the Chinese market, Apple unusually offered discounts in February.

Additionally, in the U.S., Apple faces an antitrust lawsuit from the Department of Justice, and in the European Union (EU), it is under investigation for violations of the Digital Markets Act (DMA). Industry insiders expect Apple to be indicted for DMA violations, which could result in daily fines of $50 million (approximately 6.9 billion KRW).

Because Apple was late in revealing its AI strategy and failed to ride the AI boom, and due to multiple challenges, its stock price remained subdued compared to the steadily rising shares of competing big tech companies. However, the release of Apple Intelligence has completely changed the atmosphere. Following the announcement, Apple’s stock surged, surpassing $200 per share for the first time and overtaking MS on the 13th to become the most valuable company globally.

The annual Worldwide Developers Conference (WWDC) 2024 was held at Apple Park headquarters in Cupertino, California, USA. [Image source=Yonhap News]

MS Loses OpenAI Exclusivity... Google Faces Search Traffic Decline

The unveiling of Apple Intelligence is not entirely welcome news for MS. MS has been the largest shareholder in OpenAI, investing over $13 billion (approximately 18 trillion KRW). Based on this massive investment, MS had exclusive rights to apply OpenAI’s services to its own offerings. However, with Apple integrating ChatGPT-4o into Siri, OpenAI’s services are no longer a unique selling point exclusive to MS.

Moreover, Apple’s deployment of ChatGPT-4o on devices such as iPhone, iPad, and Mac adds to MS’s concerns about its AI strategy. MS planned to strengthen its position in the PC market using AI. Last month, it launched ‘Copilot+PC’ equipped with AI, aiming to challenge Apple’s Mac PCs. However, with Apple entering the AI PC battle and having a loyal user base, competition is expected to intensify.

The Wall Street Journal (WSJ) reported, "OpenAI’s technology helped MS surpass competitors in the AI race," and "some within MS view the Apple-OpenAI alliance as an obstacle to their AI product development efforts."

The Apple-OpenAI partnership is bad news for Google. Google has paid enormous sums annually, including $20 billion (approximately 28 trillion KRW) in 2022 alone, to have its search engine set as the default on Apple iPhones. However, with ChatGPT-4o integrated into iPhones, users who previously searched only on Google when curious will now turn to ChatGPT. This will reduce Google’s traffic and advertising revenue.

WSJ evaluated, "The Apple-OpenAI collaboration frustrates Google, which has long paid Apple hundreds of billions of dollars annually to be the default internet search engine." Annette Zimmerman, Vice President at Gartner, said, "Google will definitely pay close attention."

Foreign media analyzed that the Apple-OpenAI partnership strengthens OpenAI’s position in the generative AI competition. Apple stated that approximately 2.2 billion of its devices are used worldwide. Currently, Apple Intelligence is only available on devices with M1 chips or higher, such as the iPhone 15 Pro and Pro Max, but in the long term, it will secure a massive user base. WSJ commented, "Apple’s dominance aligns with OpenAI CEO Sam Altman’s ambition to develop products like ChatGPT that appeal broadly to the general public." However, from OpenAI’s perspective, it is regrettable that Apple is considering AI applications beyond ChatGPT, such as those from Google and Anthropic.

According to Bloomberg, Apple does not pay OpenAI any monetary compensation for this partnership. Sources say Apple considers applying OpenAI’s brand and technology to hundreds of millions of devices as having equal or greater value than monetary payment. Bloomberg analyzed that this type of deal may initially cost OpenAI money. However, OpenAI can generate revenue by converting Apple users to paid accounts. Considering that Google paid $20 billion annually to be Apple’s default search engine, this arrangement is not seen as a losing deal.