Apple Stock to Gain from AI Focus
Apple Inc. (NASDAQ:AAPL) continues to make headlines as it charts its course in the post-“iPhone” world. Although the smartphone maker is leaving no stone unturned to make the “iPhone 8” a grand success, the company knows that it is time to move on to other areas for growth. It is in this backdrop that Apple’s latest move merits attention and shall impact Apple stock in the coming days.
After the euphoria of last week, Apple stock has come down to $143.66 but it is still very much in the game as the general sentiment remains bullish.
But AAPL stock investors were in for a surprise when the news came Monday that the company had decided to end its deal with the British chip company Imagination Technologies Group plc (LON:IMG). The long time Apple supplier had to make an announcement Monday that Apple will stop using its GPU technology in the next 15-24 months. This led to the IMG stock plunging by over 70%.
The company was notified by Apple, which is its largest customer, that Apple would no longer use the Group’s intellectual property in its new products in 15 months to two years time, and as such will not be eligible for royalty payments under the current license and royalty agreement (Source: “Discussions with Apple regarding license agreement,” Financial Times, April 3, 2017.)
Apple has used Imagination’s technology and IP for many years. It has formed the basis of GPUs in Apple’s iPhones, “iPods,” “iPads,” “Apple TVs,” and “Apple Watches.” Apple has asserted that it has been working on an independent graphics design in order to control its products and will be reducing its future reliance on Imagination’s technology.
However, Imagination has stated in the press release that Apple has not presented any evidence to substantiate its assertion that it will no longer require Imagination’s technology, without violating its intellectual property, patents and confidential information. Apple declined to provide the information when the company requested for the evidence. Further, it would be very challenging to design a brand new GPU architecture from basics without infringing its IP rights.
Although this separation may be bitter, it bodes well in the long term for a company like Apple that wants to be as unique as possible and in control of both its hardware and software. This has always led to the competitive edge that keeps Apple at the top of its game.
The following chart shows how Apple stock has been gaining handsomely since the beginning of this year. AAPL stock has returned phenomenal 24% in the year to date as compared to just over five-percent gains posted by the S&P 500 Index in the same time period.
Chart courtesy of StockCharts.com
By opting for GPU design in-house, Apple has signaled that it is not going to lay low and just watch its “Services” business grow. With the world moving towards AR/VR and autonomous driving technology, Apple wants its own share in the pie and not rely on outsiders to do the job for it.
Imagination Technologies makes chips that are critical for emerging technologies like augmented reality, autonomous driving technology and artificial intelligence. And Apple has big plans to dominate in these fields, which means doing the job in-house so as to achieve the desired speed and quality.
As written earlier, Apple Inc. acquired “Workflow” last month in order to further its ambitions. Apple accessibility engineer Dean Hudson had said, the app was selected for an Apple Design Award in 2015 because of its outstanding use of iOS accessibility features, in particular an outstanding implementation for “VoiceOver.” And extending this, it can be seen that if Workflow is integrated with “Siri,” it would phenomenally improve the AI-powered voice assistant by Apple. Workflow is a powerful automation app for iOS that simplifies grouping together tasks to perform custom actions.
Given the strong competition from the likes of “Google Assistant” by Alphabet Inc (NASDAQ:GOOG,GOOGL), “Alexa” by Amazon.com, Inc. (NASDAQ:AMZN), and “Cortana” by Microsoft Corporation (NASDAQ:MSFT), Apple cannot afford to remain behind in this battle of AI. And Siri is the key to Apple’s success given the fact that AI assistants would be ubiquitous on mobile devices around the world.
With the focus on AI and AR, Apple has gone ahead with the decision to drop Imagination Technologies. Although there might be some issues related to the intellectual property, Apple stock is likely to benefit from this move in the long term. It remains to be seen what other companies Apple will drop or acquire in order to retain its position as the most valuable company in the world. AAPL stock investors have an exciting journey to look forward to.