Forget Nvidia (NASDAQ:NVDA). All eyes are on Apple (NASDAQ:AAPL) now as the stock to watch in artificial intelligence. Apple stock rose nearly 10% after the tech giant announced ChatGPT for the iPhone. Investors were looking for something similar to Apple developing its own AI technology.
But will this spur the iPhone onto even bigger sales? The mobile device suffered its steepest decline in sales since the pandemic in the first quarter. The 10% drop had analysts worried the iPhone was set for a period of underperformance, but with new AI capabilities, it could spark a whole new upgrade cycle.
The biggest loser seems to be Alphabet (NASDAQ:GOOG, GOOGL), whose Google unit had been negotiating to put its Gemini AI technology on the smartphone.
Apple Stock: New Paradigm for the iPhone
At this year’s annual Wordwide Developers Conference (WWDC), Apple unveiled sweeping new integration of AI across all of its interfaces. OpenAI‘s latest, most advanced Chat GPT 4o will feature prominently in the iPhone’s iOS 18 but will also appear in the iPadOS18 and macOS Sequoia for its laptops and desktop computers.
The integration is key because users will not need to jump between tools, but rather, it will be a native part of the experience. AI will feature prominently in Apple’s voice assistant Siri and will be present in its writing tools that can help create content on the fly.
Apple maintains privacy protections are built in. IP addresses are secure and ChatGPT won’t store requests. That could be important in creating trust because OpenAI appointed retired U.S. Army general Paul Nakasone to its board.
While he brings cybersecurity expertise to the AI outfit, he was also head of the country’s top spy agency, the National Security Agency, which raises privacy concerns.
Edward Snowden warned users in a tweet about trusting OpenAI after this:
“They’ve gone full mask-off: do not ever trust @OpenAI or its products (ChatGPT etc). There is only one reason for appointing an @NSAGov Director to your board. This is a willful, calculated betrayal of the rights of every person on Earth. You have been warned.”
Elon Musk also threatened to ban iPhones from his companies due to “data security.”
Late Is Still Better Than Never
AI is still the growth engine that can propel Apple stock to new heights. It is part of Apple’s new personalized AI ecosystem it calls Apple Intelligence. The goal is to offer users a way to navigate Apple devices more easily.
It departs from how rival Samsung is treating AI on its devices. Galaxy AI, which was introduced in January for the Galaxy S24 smartphone and has since migrated to other devices, is more task-oriented, according to tech website CNET. Samsung previously introduced AI to voice control and interaction through its Bixby service.
Samsung also mocked Apple’s AI introduction. “Adding ‘Apple’ doesn’t make it new or groundbreaking. Welcome to AI,” the company posted on X.
A Cheaper AI Stock
Apple just might be the better AI stock than Nvidia. It is certainly cheaper. Where Nvidia trades at 77 times earnings and 37 times next year’s estimates, Apple goes for just 33 times and 29 times, respectively.
Apple also trades at 32 times the free cash flow it produces versus the 82x the chipmaker goes for.
In Nvidia’s favor, Wall Street estimates its earnings will grow at a compounded annual rate of 46% for the next five years while Apple is only expected to see 10% growth. Yet if AI supercharges iPhone sales into a new upgrade supercycle that could change the trajectory of its earnings growth.
On its own merits, though, Apple stock is one to buy as it transitions into the latest AI stock.
On the date of publication, Rich Duprey did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
