Markets

Is Apple Stock Finally Making AI a Priority?

Earlier in the year, the prospects for Apple (NASDAQ:) stock looked kind of grim. The company’s iPhone franchise was suffering from tepid demand and the company was experiencing major headwinds in China.

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But of course, this was actually the ideal time to go long on AAPL stock! For the year so far, the return is a sizzling 80%. This has beat out other mega tech stocks like Facebook (NASDAQ:), Alphabet (NASDAQ:, NASDAQ:GOOG) and Microsoft (NASDAQ:).

Yet keeping up the momentum will not be easy for Apple stock. Considering the massive scale of the company, it’s not easy to find growth.

Apple has successfully transitioned its business model toward services (such as with Apple Music, App Store and iCloud), but it needs more drivers.

So what can the company do? Well, I think artificial intelligence (AI) is one area that holds much promise.

Keep in mind that Apple has some major advantages. First of all, the company has a massive installed base, with one billion smartphones on the market. This is a rich source of data for AI models.

Next, there is more than enough cash in the bank to make major acquisitions and hire top-notch AI talent. Just some of the recent recruits include , who is the former VP of Engineering at Google, and Ian Goodfellow, another Google alum. Note that he created the AI approach usually called Generative Adversarial Network (GAN), which has been effective in creating content (like images). It’s considered one of the most significant developments in AI.

Apple’s AI Issues

Despite the success, Apple has still remained a laggard in the AI market. Even Siri has been a disappointment. For example, the app has with rival technologies from Amazon (NASDAQ:) and Google. These companies have aggressively leveraged voice-activated systems into lucrative businesses, such as home smart devices.

Then there is Apple’s move into the autonomous car market. This effort began in 2014 and grew quickly (there were about 5,000 employees on the project last year). However, the progress has appeared to be far from robust. Consider that Apple has recently cut some of the staff. And according to data from the California Department of Motor Vehicles, Apple’s vehicles .

And besides, other than Siri, there are few other notable AI innovations pushing Apple stock forward.

So what’s going on?

According to , who is the assistant professor of Business Technologies at Carnegie Mellon University’s Tepper School of Business, there are two key factors at work. As she told me in an email interview:

“However, compared with competitors such as Google, the company’s progress AI seems to have fallen behind. A potential reason for this is Apple’s emphasis on privacy and security — Apple collects less personal data, and its AI strategies have been focused on running workloads on local devices, rather than using cloud-based resources. While this may be good from a privacy perspective, it can put Apple at a competitive disadvantage in the AI competition because the training of AI algorithms require massive amounts of data and computing resources.

“Another potential reason is that Apple has been mainly a hardware company focusing on selling devices — although increasingly becoming a service company — and AI was not prioritized the same way it was at other companies like Google and Amazon.”

Bottom Line on AI and Apple’s Stock Price

Considering the mixed results with artificial intelligence, this could be a long-term issue for Apple stock holders. I think there are some silver linings, however. For instance, AI is still in the nascent stages and Apple has plenty of time to leverage the technology. It’s also important to note that Apple’s focus on privacy could wind up being an advantage. After all, with nefarious uses of AI emerging — such as with deepfake videos — there will likely be more demands for responsible uses of the technology.

Apple has also been increasingly using AI for its products, such as the new iPhone 11 Pro. It uses to allow for much better photos (this is done by using something called “deep fusion”).

In other words, don’t count Apple out. Again, the company has some major advantages for becoming an AI power — and more importantly, Apple appears to have instituted this execution into its company focus.

Tom Taulli is the author of the book, . Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.

The post appeared first on InvestorPlace.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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