Apple invests more in artificial intelligence, but still lags behind Silicon Valley peers | Real Time Headlines

Topics of most interest to analysts apple Thursday’s quarterly earnings call is a product not yet available to the public.

Apple Intelligence is the company’s upcoming artificial intelligence system that could spur a new cycle of iPhone upgrades and hardware sales. But the CEO Tim Cook Chief Financial Officer Luca Maestri spent a large portion of the Q&A portion of the analyst call dodging questions about Apple’s pace of rollout, whether the company has seen sales growth for the service, and Apple’s agreement with OpenAI to integrate ChatGPT into its software.

One issue Cook is willing to partially address is the company’s spending on artificial intelligence servers. It’s a question that comes up throughout tech earnings season, as investors try to gauge how far companies are in building artificial intelligence infrastructure and how much more there is to come.

Cook acknowledged on the conference call that costs are rising. He made similar comments to CNBC.

“This quarter’s results reflect our year-over-year increase in spending on artificial intelligence and Apple Intelligence,” Cook told CNBC’s Steve Kovach on Thursday.

Apple reported that property, plant and equipment expenses in the second quarter were US$2.15 billion, an increase of 8% quarterly and an annual increase of approximately 3%. Some of these capital investments are not in artificial intelligence but in other Apple businesses.

Apple’s capex increases have been minimal compared to its larger peers, e.g. Microsoft, Googleand Yuan. These companies are spending huge sums to build and equip AI-centric data centers Nvidia chips.

For example, Microsoft reported second-quarter capital expenditures of $13.87 billion, a 55% year-over-year increase, according to FactSet. Alphabet’s spending this quarter rose 91% to $13.19 billion, while Meta’s capital expenditures rose 31% to $8.3 billion.

CEO Yuan Mark Zuckerberg Explaining this surge in spending game theory terminology. He said the risk of missing out on the generative AI boom is greater than the negative consequences of spending too much on graphics processors and servers. Zuckerberg also wants to make sure that if the next big technological shift is artificial intelligence, Apple doesn’t have complete control over it.

“I actually think all the companies that are investing are making rational decisions,” Zuckerberg said on the Bloomberg Podcast last week. “Because the disadvantage of falling behind is that you won’t be able to master the most important technologies in the next 10 to 15 years.”

Apple is playing a different game.

Unlike Amazon, Google and Microsoft, Apple is not involved in the cloud business of leasing infrastructure to other companies. Meta isn’t in that business either, but the company is investing in training its own open-source large-scale language model and using artificial intelligence to power its massive recommendation engine.

apple Revealed this week In a technical paper, the company leased a relatively small number of cheaper Google TPUs, rather than Nvidia chips, to train its Apple intelligence model. On Monday, the company freed The first version of Apple Intelligence, its suite of artificial intelligence features will improve Siri, automatically generate emails and images, and sort notifications. But it is currently only available for developer testing.

When it comes to building infrastructure, Apple has the advantage of designing its own chips for its phones and servers, so the company doesn’t have to spend billions on third-party processors.

Apple takes a “hybrid” approach to data centers, pushing some of the capital expenditures to partners and converting them into Apple’s operating expenses.

“In terms of capital expenditures, it’s important to remember that we have a hybrid approach of working internally and doing business with certain external partners, and the capital expenditures will occur in their respective areas,” Cook said on the call. in business.

One of these partners is OpenAI, whose ChatGPT technology will be integrated into iOS later this year. OpenAI Rent Nvidia The GPU comes from its major investor, Microsoft. Apple also leases cloud capacity from providers such as Amazon, Google and Microsoft.

Apple declined to disclose details of the OpenAI agreement on Thursday, calling it confidential. But Cook left open the possibility of profit opportunities.

Apple reported quarterly results Thursday that beat expectations, with sales rising 5% to $85.8 billion. The stock rose less than 1% in after-hours trading.

watch: Questions remain about how Amazon will use artificial intelligence