Ask Siri: Can artificial intelligence revive iPhone sales?
That's debatable, but for investors hungry for anything AI-related, the answer is yes. apple 
AAPL The stock hit a new record high just two days after the company unveiled its long-awaited AI strategy, after the company announced a partnership with OpenAI, raising hopes that a new “super cycle” would emerge as consumers upgrade their iPhones in search of new AI capabilities.
Apple shares surged 10%, adding more than $300 billion to the company's market capitalization. Microsoft 
MSFT They once again became the world's most valuable companies, but both companies have since been overtaken by Nvidia. 
NVDA.
However, Apple's flagship annual developer event on June 10 left some disappointed, as the event's focus was solely on Apple.
Apple Intelligence
The company's message is twofold: first, its partnership with OpenAI is just the first of many, and second, while the first wave of generative AI was focused on artificial intelligence (AI) that understands the broader world, Apple, through “Apple Intelligence,” is uniquely positioned to deliver generative AI that understands you.
This means that Apple's own generative AI models are consistently ranked at the top. “Apple Intelligence” is the collective name for a set of models built and trained by Apple that will be built into the company's new operating systems (iOS 18, iPadOS18, macOS Sequoia).
But Apple hasn't built generative models with the scale and complexity offered by companies like OpenAI, choosing instead to act as an entry point for other products on the market that can do things Apple can't. The company's on-device base model has 3 billion parameters; OpenAI's GPT-4o and Google's Gemini Pro are estimated to have more than 1 trillion parameters.
And so our partnership with OpenAI came about, the first of many.
AI features are only available on the latest iPhones and Macs with A17 Pro and M-series chips. The latest A17 chip is the first 3-nanometer chip used in a smartphone. It gives iPhone a huge boost, enabling it to perform 35 trillion operations per second, double the performance of the previous generation.
Morgan Stanley 
MS It's estimated that only 8% of iPhone and iPad users own the latest models, meaning there's a lot of replacement spending. Historically, an accelerating iPhone replacement cycle has driven outperformance for Apple stock.
As is often the case, the market may be getting ahead of itself. Apple Intelligence doesn't look like anything groundbreaking. Some of the features it'll be introducing this fall, like automated editing and suggestions for composing emails and texts, and AI-powered inbox organization, already exist in rival Alphabet's Gmail. 
Google.
Can Apple Catch Up?
It's also important to remember that Apple's rivals Samsung, Google and a host of Chinese device makers are already selling phones with AI-powered features.
The launch of Google's Pixel 8 smartphone in October and Samsung's Android-based S24 in January brought a new concept into the industry vernacular: the “AI smartphone.” Both are powered by Google's Gemini family of AI models.
This has already become a key battleground in the global AI race: tech market research firm Counterpoint predicts that by 2027, “AI smartphones” will account for 43% of global smartphone shipments, with 1 billion devices in use.
Perhaps that's why International Data Corporation (IDC) predicts Android smartphone sales will grow 4.8% year over year in 2024, while Apple sees just a 0.7% increase.
And in the “AI PC” field, rivals like Microsoft Qualcomm 
QCOMand Advanced Micro Devices 
Am He made a similar argument about early leadership.
Qualcomm CEO Cristiano Amon said on June 6 that the PC industry is being reborn and that AI PCs are the most significant advancement since Microsoft's Windows 95 operating system.
Microsoft kick-started the AI PC race in May when it unveiled a line of AI-enabled PCs. These devices will come with Copilot, Microsoft's flagship AI assistant.
Apple has a history of lagging behind on certain technology trends and then becoming a major player. Still, iPhone sales are expected to continue to be disappointing, so I prefer to own another highly successful company: Microsoft.
Why Microsoft stock?
The company continues to pursue long-term growth through investments in AI and cloud. While it is not immune to macroeconomic weakness, Microsoft has assets as diverse and powerful as any company in the technology industry. It is one of the few companies with a complete and integrated set of products aimed at enterprise efficiency, cloud transformation and business intelligence. It also has a large and loyal customer base, a large cash cushion and a strong balance sheet.
Microsoft has a strong push into cloud versions of Office, Dynamics, Teams, and Azure infrastructure cloud services, and not only is the migration to the cloud ongoing, but it also has a big opportunity in AI: Revenue from all “cloud-based” businesses now accounts for more than two-thirds of total revenue.
Of course, AI and the Azure cloud business are closely intertwined: artificial intelligence contributed 700 basis points to Azure growth in the most recent quarter. And that growth could have been even greater if Microsoft hadn't faced capacity constraints. On the company's earnings call, CFO Amy Hood said, “Currently, near-term AI demand is slightly outstripping our available capacity.”
Microsoft has taken an early lead in the race for generative AI supremacy, following its $13 billion investment in OpenAI, and this year the company invested in European AI startup Mistral AI and hired most of the staff from rival AI startup Inflection. Microsoft invested in Mistral in February at a valuation of $2.1 billion. It's now valued at $6 billion.
Microsoft's early lead in AI is a big factor in Azure's current growth rate of 31%, nearly double the AWS division's 17%. Amazon 
Amazon.
I agree with Bank of America research analyst Brad Sills. 
Blood alcohol contentHe summed it up nicely by saying that Microsoft's Azure services are “the only software business benefiting from AI at this point in the cycle. Microsoft has been a leader in this huge new cycle.”
I expect Microsoft to remain a leader in AI for the foreseeable future, and MSFT stock is a buy anywhere near its current price of $446.
On the date of publication, Tony Daltorio did not hold (either directly or indirectly) any positions in any of the securities mentioned in this article. All information and data in this article is for informational purposes only. For more information please see Barchart's disclosure policy here.
