Apple's services are set to “bloom” with new AI features

Apple (AAPL) shares had a muted reaction to the company's latest announcement at the Worldwide Developers Conference (WWDC) that it is partnering with Microsoft (MSFT) 49%-owned OpenAI to integrate ChatGPT into Siri.

Ken Mahoney, CEO of Mahoney Asset Management, appears on Catalysts to share his insights on Apple and what investors should take from Apple's announcement in terms of future stock price movements.

“This is going to result in a massive upgrade cycle. There are 270 million phones that are more than five years old. This is a huge opportunity. But when it comes to technology, I have to rely on a lot of other technology research,” Mahoney told Yahoo Finance. “They've spent a lot of time on Siri. I like Siri. I would like to see Siri become a little more enhanced with new AI models and things like that. But I don't yawn a lot. This is Apple. They've got 2.2 billion devices out there. CEO Tim Cook has done a great job of shifting the focus from hardware sales to services. And this is really where this is going to blossom.”

To learn more about expert insights and the latest market trends, click here to watch this full episode of Catalysts.

This post Nicholas Jacobino

Video Transcript

And we continue the conversation about Apple.

Initially, investor reaction following these announcements was muted, with investors predicting the stock price would rise by more than 3%.

One such investor is here with us today.

We're joined by Mahoney, who is an Apple shareholder and CEO of Mahoney Asset Management, and it's great to talk with you.

I know your position hasn't changed after the news that came out of Apple in the last 24 hours.

But it's really interesting what we're hearing from Apple here about the impact of the announcement.

I'm curious what was missing from the announcement that would have made you a little more excited, because reading your notes, it seems like the news could be summed up as just a shrug.

Well, again, I think it's great in the long run.

Large-scale share buybacks are underway.

100 and $10 billion in share buybacks.

There are a few shekels here and there, but a massive upgrade cycle is coming out of this.

That means there are 270 million mobile phones that are over 55 years old.

That's a big opportunity.

But when it comes to technology, I rely on a lot of other technology studies.

They thought it was a yawn.

They spend a lot of time on Siri, which I like.

I'm hoping that Siri will be able to do things a little better with new AI models and things like that.

But I don't find this boring, I find this just like Apple.

As we all know, there were 2.2 billion devices on the market last year.

Tim Cook has done a great job shifting our focus from selling hardware to services.

And this is really where this blossoms.

So, rather than being a yawn, this is to be expected.

With this many customers, they think if they tweak this, tweak that, and join the party, they'll be successful.

Is there room for an explosive upside like NVIDIA's?

Is there no room for explosive growth in other areas of AI?

Not necessarily, but with $10 billion per share in stock buybacks, Apple puts are pretty favorable.

So what else would you expect from Apple?

What do you think are the advantages of this?

It's also worth mentioning that the stock is currently hitting intraday highs as investors begin to understand some of these new features.

So yesterday I was kind of feeling like I didn't know what this meant going forward.

Today, stock prices are responding well.

So, what more do you want here?

What I'd like to see more of is better integration from Mac to iPad to iPhone.

You're starting to understand it too, but it's really worth it.

And like you said, Siri is the person responsible for putting all of this together, whether it's scheduling appointments or reminding you about appointments, and there's an app for that.

This is very useful, for example, if you are picking up someone at the airport who is flying, if you want to meet them, it will let you know that they are about to leave the airport, they will be leaving in 10 minutes.

So we're going to see a lot of applications, and I think the number of applications where AI could come back is going to be overwhelming.

The biggest problem is that they have a lot of customers who want Apple to take the lead, but I don't think Apple is necessarily betting entirely on this.

Well, I think that's fine. We'll do it. But instead of blazing a new trail, we'll put it on top of the AI, we'll put it on top of Sully.

Now, the question I'm wondering is, who is going to pay for all of the costs you just described?

Ken Apple has said it will not pass on the costs of Chat G BT to customers.

So does that mean Apple will cover those costs?

And how much of a headwind will that be to their profit margins?

right?

But this is an area of monetization where they have never had experience before.

I mean, when you look at the percentage breakdown of developers and so forth, even if it's just a small piece of the pie.

I mean, it's kind of complicated how they do that.

But at the end of the day, they are the ones in control, and if these companies want to stay in the race, they have no choice but to turn to Apple.

So, from what we can see, we're going to see a similar payment model to the App Store.

So you're saying that the ability to charge customers for use of certain AI features will outweigh the cost of those features for Apple.

I believe so, I believe so.

Look, they have lots of ways to solve this.

Hmm, but I think it's probably the best way to monetize your site, keep your customers happy, and invite others into this upgrade cycle.

Look, we're all mixed up here.

I've been telling investors that Apple's stock price could hit rock bottom over the summer, so why would anyone want to upgrade their phone now?

Why not?

Wait for 15 or 16 and so on.

So I was able to hit it a little lower.

Hmm, but when I find a cool feature and I see it on Instagram or I see my friends using it, I know they are usually early adopters of technology.

And then there are people like me behind them saying, “00, you can do this, you can do that.”

There, Apple will be able to make more money from the site.

AI and Ken are full of new features, new methods, new apps, and I spoke with Gil Laia of DA Davidson earlier this morning.

When it comes to the competitive landscape in the AI field, Apple is leading the way, he said.

Do you agree with that?

Um, no it's not.

So, we can say that NVIDIA is in the lead.

So this was made by the CEO of NVIDIA, and he said, “We're in the second or third inning of this cycle.”

I don't know if Apple is leading the way, but they don't need to lead the way.

You know, they're a big company, they have 2.2 billion devices.

So, while developers and all of them could come to Apple, I don't think they're necessarily in the driver's seat.

NVIDIA, in that respect, has a market cap of $3 trillion and has added $1 trillion in the past six weeks.

This shows that video is the leader in this space and not Apple, but Apple doesn't necessarily have to be the leader in this space because obviously Apple has a lot of customers and you know the ecosystem, once you start using an iPhone, you typically stay there, you don't want to take photos, you don't want to lose your contacts.

It integrates with your Mac, it integrates with your iPad.

So they're just building this great ecosystem and adding services on top of the existing foundation.

Still, I think it's a win-win for shareholders.

I want to talk about another risk for Apple.

That's Elon Musk.

He posted on X yesterday, saying that if Apple were to integrate Open AI at the OS level, Apple devices would be banned at his company, which he said would be an unacceptable security breach.

How big a risk is that to you and your asset holdings?

right?

So, I'm still trying to figure that out.

Then again, we have to take Elon Musk at his word.

I mean, he's a very smart guy and he's always thinking ahead.

But again, when you opt-in to this AI platform or AI chat or whatever, you get a disclaimer.

So it's up to the consumer to decide whether or not they actually want to participate.

So I don't think Apple is just going to take your data and send it there.

I think there are some speed bumps that will make consumers happy.

Remember, Apple has always had high integrity when it comes to data collection.

They have all this data.

They are not selling to third party vendors or anything like that.