Two days ago, Apple held their highly anticipated event, the
Worldwide Developer Conference. This is where they show off all
the new features and all the new software they're creating.
And this one was especially important because it was Apple's
introduction into AI, the buzzword we've learned to love
over the past year. Now Apple took this approach of
the Apple way of doing AI, which means rebranding it to Apple
Intelligence and focusing on personalization, customization,
how the AI actually contacts the customer, and importantly,
privacy. Now, when I watch this
presentation, I did an entire recap of it.
I was actually impressed by it and I don't think I'm super
easily impressed. I genuinely thought the
presentation was good. So Apple addressed major
concerns both for investors and artificial intelligence and
incentivizing future growth and defending themselves against on
earth regulation. They did that all in a single
presentation. Like always during the
presentation, the stock traded down.
And I pointed out during this that that's typically what
happens. People are watching the
presentation and there's so much information to take in that
you're almost a little bit nervous of of what it all means.
But when investors decided to sleep on it and give it a night,
it was like they had time to wake up and realize that Apple's
going to be OK, that their new method of going into AI is
probably going to be successful. And the stock has been like a
rocket ever since. The day after the presentation,
Apple ended the day 7% in the green.
Now that's almost $200 billion in market cap for a company like
Apple. They quickly regained the top
position for Microsoft as the largest company in the world.
And now we move on to day 2 after the same presentation, and
it's up another 6%. These are incredible gains for a
company this size, back-to-back high single digit gain days.
You don't see that often with a company like Apple.
So investors really had time to kind of boil down and digest the
different news in this developer conference, and it seems like
they like it. They're buying more and more
into Apple strategy. Now, one person that has been
covering Apple for a long period of time from a consumer
perspective, from a reviewer perspective, is Marcus Brownlee
or MKBHD. You probably know him because he
has an incredibly widely popular tech review channel.
I think he's the most popular in the world at this point.
So he went to the event and he also got the chance to sit down
with Tim Cook. He sat down with Tim Cook for
around 15 minutes and asked him about this specific event, about
Apple intelligence, how it's different than AI.
He asked him about privacy, the handoff to open AI, and the
partnership with open AI, and a lot of different subjects.
So we're going to go through this interview.
I want to kind of translate what's going on here and what I
believe Tim Cook is doing from an investment perspective.
So this interview is more from a consumer perspective, from a
tech reviewer perspective, but I want to give you my thoughts as
an investor in Apple. So we have a lot to get to.
If you like this type of content, you can consider liking
the video or subscribing to the channel.
Now, let's go ahead and start off with this interview.
This is Marcus Brownlee and Tim Cook Day.
Which was really fun to watch. It was a whole 2 hours.
I want to zoom all the way out because obviously a lot of talk
about AI in general and I, I'm kind of just left wondering how
Apple defines AI in general because I know if you ask a
regular person, you might hear about generative AI, chat box,
things like that. And these are relatively new
additions to Apple's AI portfolio.
How do you look at AI as Apple? Well, we've been executing with
AI for a long time. It's that you're wearing a
watch. It's at the root of the watch.
I mean, you think about things like crash detection, fall
detection, things like a fib and all of this kind of stuff is
machine learning at the end of the day.
And so, but what has captured people's imagination is
generative AI. And we see it as the opportunity
to for a whole new curve of technology and, and providing
and doing more things for people, providing an assistant
for people, things that really improve people's lives.
His answer here is so good and it's so Apple.
This is the most Apple answer you can have.
Apple doesn't look at things the same way most other companies
look at things. If you go to NVIDIA, if you go
to Google, if you go to, you know, even Android and a lot of
cases, they've advertised their products as having this much
storage and this many nits of brightness in their phones and
this type of processor. And here's the name of the
processor, right? It's all the technical specs of
the device. And although some people can be
impressed by technical specs, that's not the way that Apple
tries to communicate with their customers.
Apple just says this device is going to be better than the last
one. It's going to be a lot better.
It's going to be double as bright.
It's going to be smoother. It'll it'll be more fun to use.
You're going to love this new device.
So it's a difference in communication.
Apple doesn't focus their branding on whatever the latest
tech is. They focus the branding on how
the tech communicates with the customer.
So instead of it being artificial intelligence or
machine learning, it's just that you have fall detection in your
watch or you have a fib technology.
Those are all things the Watch does that helps the consumer,
because the consumer can understand that.
They can take an ominous, misunderstood and ambiguous
technology like artificial intelligence and boil it down
for the consumer in easy to understand terms.
And that's what Apple really does best.
So that's how we see it. There's obviously it's not
without downside. And so we approach it very
thoughtfully and and as as you heard, we.
He says that we're doing things more thoughtfully than the
competitors. In Apple's terms, this means
that they're taking what competitors have done.
They're refining it, making it a little bit better, and then
distributing it to their millions of customers.
That's thoughtful. That's what Apple does best.
They don't invent new things. They just take ideas from other
people. They refine them and improve
them and Polish them and then distribute them.
We have always been focused on privacy, and so privacy is a
very key tenet of our thrust into AI, right It's.
Interesting to watch Apple's arc with AI 'cause I, I made a whole
piece not more than about a year ago about how Apple seems to
never say AI, even though they have all these, these neural
engines and machine learning and things like that.
And, and so now we have almost this pivot where now we're just
saying it, we're actually branding it Apple Intelligence
now. I'm curious why that changed
now. Well, in the in the beginning
and threw out almost everything that we always do, we always
talk about the benefit to the user.
And so the benefit to the user is crash detection and fall
detection, not the technology behind the feature.
Apple understands that customers want to know what will affect
them directly, not all the intricacies of the technology
behind it. They just want to know what's
going to affect them. And so we still, we, we still
view it like that. But it became clear that people
wanted to know our views on on generative AI in particular and
and so we decided to embrace it and called it Apple
Intelligence. About AI, if it can be used for
nefarious things, we won't go down that road.
And at the time, I assumed that that meant generative AI was off
the table because of all the things that we'd seen about what
it was potentially capable of or things that it might do.
Has that changed? Is that something that was off
the table and you figured now you've got the right tools or
the right restrictions to make sure that that all goes super
well? How do you think?
About that gender of AI was never off the table.
It was always about pursuing it in a thoughtful kind of way.
And and so that that's what we've done and we've implemented
it in ways that are less likely to create issues.
I think Tim Cook's giving a subtle jab at Google.
We know that Google felt a lot of pressure to rush out their
Gemini AI generator and the image generator generated a lot
of crazy images, historical images of black Nazis and things
that didn't even make sense. It was embarrassing for Google.
They had to retract it from the market and pull it off, and
they're revising it and working on it.
But I think Tim Cook is trying not to make the same mistake.
They've, of course looked at what Google did, rushing out
with a product before it was really ready and rigorously
tested, and Apple's taking a more conservative approach.
And this is again, what Apple does.
They're never first to anything. They never really invent
anything. They just do things that already
exist a bit better than everyone else.
How so? How so will things that you, if
you think about the kinds of things that we talked about, we
talked about personal context and we talked about privacy.
And so we're not waiting for a comprehensive privacy
legislation regulation to come into effect.
We're we already view privacy as a fundamental human right.
And so that's the way we that's the lens that we see it at.
And given that we're doing those things, personal context and
privacy, we wanted to integrate it at a deep level so you're not
having to think, oh, well, now I want to do something that uses
intelligence. We put it into the apps that
you're already using and integrated it deeply.
They've deeply integrated Apple intelligence and privacy.
Now, of course, he's talking to a tech reviewer here, and he's
talking to customers of Apple, potential customers of Apple.
He's selling this as a benefit because it's privacy, right?
But there also is another aspect to this.
Apple says repeatedly, Tim Cook has said repeatedly in the
presentation and here again, that they are deeply tied
together. Privacy and Apple intelligence
are tied together, meaning that if you break them up, that you
no longer have the privacy that's integrated with Apple
intelligence. I believe that the 2nd and
hitting meaning of this privacy is to defend Apple from onerous
regulation, from potentially breaking up their ecosystem.
I've said before repeatedly that the entire Moat of Apple is the
ecosystem. In the case of Apple, the Moat
and the ecosystem are synonymous.
They go hand in hand. If you break up the Moat, if you
break up all the apps, if you make it so the device doesn't
run with its core integrated software, then it's basically
just like a commodity. It's a hardware seller.
So the integration in the ecosystem go hand in hand.
And what Tim Cook's doing here is tying the ecosystem and the
deep integration to privacy. That way, if the regulator say
Apple's a monopoly and we need to break up Apple, we need to
separate all of these applications from all of these
integrations and we need to untie things.
Tim Cook and Apple will then say, well, you can do that.
You can break the integration from all of our apps and force
us to break everything out into different segments.
But if you do that, we can no longer ensure the privacy of our
customers. Instead, they'll be sending data
to all sorts of various third party applications of which will
have no control over the privacy.
So he is forcing regulators to make a choice.
Either they let Apple continue with their deeply integrated
ecosystem slash Moat, or they break up the Moat and ecosystem
and sacrifice customers privacy. So the genius of this huge
intense focus on privacy from Apple is it serves two major
purposes. It's not only desirable for
customers, they want privacy on their devices, but it also
defends them against regulation. I think this is one of the best
moves that Apple has done because one of the primary
concerns I've had for Apple is regulation and having their
ecosystem broken up. So I really, really like the
direction Apple's going. I actually think it's, it's just
so smart. It it's so smart, the hidden
things they're doing with their company.
Yeah. I think also now there's a lot
of talk about it now that there is generative AI, a lot of
people have, I mean Apple's notorious for never sending
anything to the cloud. Everything's on device because
that is the most secure way to do it and was applauded for it.
Interestingly, this is a little bit different now with a lot of
these larger models, more complex requests, you actually
do have to go off the device. So you've developed, when I get
the name right, private? Cloud Compute.
Explain this to us because I think the the general chatter
online is well, they have to be sending data to open AI for
example to get a request back from ChatGPT.
Well, there's private cloud compute, and then there's the
arrangement with open AI. These two things are different.
Distinguishing those two things is really important, and this
next, this next part of this, I think they're going to go into
where I think Apple's making their next big move.
And this is another, somewhat hidden move that Apple's making.
And so if you look at private cloud compute, we're utilizing
the same silicon, not the same silicon, but the same basic
architecture as the silicon that's in the well, that's in
the iPhone and, and, and we're using the same software.
And so we, we believe that we've done it in such a way that it's
as safe and secure and private in the private cloud compute as
the device. And so we've really, we've
really worked on this a a a lot and put a lot of wood behind
that arrow to, to assure that if you're, if you're working on
something that requires world knowledge, so you're out of the,
the domain of personal context and so forth, then you, you may
want to go and use one of the large language models that are
on the market. And we we selected what we feel
is the best one. So that's the distinction.
And I think that was really smart by Apple.
It would have been nice to have open AI deeply integrated into
the ecosystem and a part of Apple.
But then that brings in the huge question, do you really want
open AI to have all of your data and know everything about your
contacts and your photos? Most people would say no.
Most people would say, I don't really trust Sam Altman, you
know, someone that came on the scene just a couple of years ago
with that level of data. So they're not doing that.
They have Apple intelligence, which is deeply secure and
private from what he's saying here.
It's just as private as your phone.
And that's what has knowledge about your context, about your
messages, your photos and all that stuff.
And then you have the option to go outside of your context and
hand off questions to open AI. And that's a completely
different thing than Apple intelligence with Open.
AI and ChatGPT, but you'll make a conscious decision to do.
That every time, every time. So you you can guarantee that
there will never be any data sent to open AI without your
explicit user. That's right.
So we know that Apple
Intelligence knows your personal context, your photos, your
messages, and all of that. That's Apple intelligence.
And then the handoff to open AI is entirely different.
That's for things outside of the world.
That's things where you're answering different questions
and you have a nice little warning that you're going to
Open AI with those queries. So those are two distinct
things. Now Apple stresses and Tim Cook
stresses in this interview, the privacy aspect.
This is going to be really private, and it's just going to
be a nice relationship with Open AI where they can answer some of
your questions in a seamless way without registering an account.
So that's nice from Apple, but I think there's an entirely
different aspect to this. This is a new default position
for Apple. Think about this for a minute.
Open AI is the defaulted LLM. It's the defaulted position to
be the default hand off. When you have these questions
that are for LLMS. Now, they mentioned in the
presentation that they're open to having different LLMS.
At some point, they might have four or five to pick from, but
there's going to be a ranking order.
If you have Open AI and Perplexity and Gemini, and then
this other LLM and this other one which gets to be defaulted,
how is Apple going to pick the default LLM?
Well, I think it's going to be financially driven.
I think in large part it'll be financially driven.
We already know the potential value of defaults.
The value of being the default search engine in Safari is $20
billion per year, according to Google.
Google's willing to write this big of a check every single
year. That grows every single year.
It's probably closer to 25 billion in 2024.
And they're willing to do so because they see the value in
defaults. And Apple just created a new
default position instead of with search, it's with LLM.
So now Apple has two default positions, the one with their
Safari search engine that Google currently owns, and the one with
LLM that Open AI currently owns. What is the one with Open AI
worth? Potentially worth, I don't know.
I can't say, but I think it's got to be worth something.
Just looking at these numbers and that the default search
engine is worth 20 billion, I have to imagine that being the
default LLM and the data and exposure and different flow you
get of data from that is worth something.
Whether it's $100 million or billion dollars or $5 billion, I
can't say. But I think that Apple just
created a new default position, which could be highly lucrative
based on other default positions and what companies are willing
to pay for that flow and that data and that partnership.
I think this could be another highly lucrative 1.
So they're starting off with open AI, but they could
eventually have a bidding war. They could have other companies
bid to be the default LLM hand off with Apple.
So this is another, I think, somewhat sneaky thing that
Apple's doing. Again, they have the privacy
aspect of this. If you don't want to use an LM,
you don't have to. You can just use Apple
Intelligence, which knows all your context and personal stuff.
But they have this new potential money maker with another default
position to be that LLM. So Apple is finding new ways to
grow through their massive distribution.
So again, when I study this presentation overall, and I view
how it impacts Apple and the hidden things they're doing
behind the scenes, I can see that there's a lot of thought
going behind this. They are really combating
regulation, tying privacy to their ecosystem, and they're
finding new ways to generate money.
They're both incentivizing upgrades of their devices, where
only 5% of users right now have access to Apple Intelligence.
They're going to get the other 95% to upgrade.
And then they also have the default position that they
created with the LLM, which as we've seen from Google, can be
highly lucrative. So Apple's covering a lot of
different things with one presentation and I just thought
it was impressive. I thought they did a really good
job. Now I want to talk about my
history with Apple stock because I've bought a lot of this stock
and I've recently trimmed some of this stock.
I want to go through and kind of give some context here.
Apple's a position I've held since early 2018.
It's one of the O GS in My Portfolio and I've overall done
a lot of buys and a few trims. But right now the position is a
total of $47,392.00 and 30,580 of that is gains.
So right now the majority of the position is gains.
I first started buying it in 2018, but it was only with a
small amount of money. My Portfolio was small overall.
Apple was just one of the many positions.
But it was 2020 during the COVID pandemic when I really decided
to jump into Apple. I sold $20,000 worth of bonds
and I bought a lot of Apple in 2020.
This was at around $90.00 per share.
So I bought $20,000 at $90.00 per share.
And then I continue to hold. Apple traded up a little bit.
And then in April 30th of 2021, Apple had a big dip.
During that dip, I decided to buy more of it, especially in
June of 2021. That's when it traded down to
around 1:20. So I increased my position about
double at that time period. These two large buys of $20,000
hair and $20,000 hair are really what grew my Apple position.
So that's what made it into a big position, hugely in the
green. Now I've done some trims along
the way. Some of them have been good and
some of them have been poor. One of the trims I did recently
was a poor trim. I trimmed it at 180.
So I trimmed it just before this big 20% run up.
That was a bad move. I should have held on to it.
I was getting a little bit concerned about how aggressive
the EU regulations were with Apple.
The valuation had gone up to around a 30 PE.
The EU was being incredibly aggressive with the regulations
and I decided to take a little bit off the table.
Apple has manoeuvred, I think, really well since then and the
stock has moved up to well above $200.00 per share.
So over this time period I've done a couple really good buys
and I've also added to it at different times that I think
we're good. And then I've done a couple of
trims that I think were decent and one trim that I think was
bad. I wish I could undo that trim if
I could. That's my trading history with
Apple. If we look at it overall, I have
$29,500 of gains. That's market gains and another
$1032.00 in dividends earned. So that's the combined gains of
my Apple position. And this is in the passive
income portfolio. There's another portfolio where
I've held Apple for a couple years and I've sold out of the
entire holding. That's in the story fund.
So this is a different portfolio.
It's only worth $230,000. Around 70,000 of that is gains.
Now if we look at the story fund, I don't hold Apple in it
currently because I recently sold out of the position.
But I want to show you this sell.
This is the trade I did with Apple and the story fund.
December 11th 2023 I sold Apple and bought Netflix.
So that was December of last year and I sold Apple at a price
of $193.00. So that seems like a bad sell
because Apple went up after selling it.
But we also have to pay attention to what I bought.
I bought $2500 of Netflix at the same time.
Netflix's stock price at the time of this trade was $464.
And if we go back to that day, Netflix is up 42% since that
day. So Netflix has gone up a lot
more than Apple during that trade.
So overall, Apple's been a position that I've never sold
for less than I've bought it. Every single buy I've done at
the company has been accretive. I've made money on all of them.
Now, there's been some trims that have been really good where
they've been accretive to my performance and some trims where
I trimmed it too low or I trimmed it too early and it's
been detrimental to my performance.
But overall, given the entire track record here, this has been
a big winning position that's outperformed the markets.
Now, that's going to be it for now.
If you want to see additional content, exclusive episodes and
have access to qualtrum.com, you can check out the Patreon in the
link in the description below. Other than that, I'll see you
next time.