Apple's AI Strategy: Gradual Integration, Big Potential, Says Analyst

Apple's AI efforts are progressing slowly but steadily, with the potential to drive significant growth in the next year or two, according to Gil Luria, D.A. Davidson technology research head. In an interview with Bloomberg yesterday, Luria argued that while Apple's current AI features, like smarter notifications and enhanced photo editing, are "sneaking in," they haven't yet reached the tipping point where they drive iPhone upgrades.

"They have to get to a point where you do notice, you think it's great, and you encourage other people to buy new iPhones," Luria explained. This, he believes, is the key to unlocking sustainable growth for Apple, impacting wearables and services.

Luria highlighted recent developments with DeepSeek, a smaller, more powerful AI model, as a positive sign for Apple. These smaller models are ideal for on-device integration, reducing reliance on large data centers. Luria predicts that within "a year or two," Apple will be a leader in delivering AI directly to consumers via their devices. "Small, powerful models fit on a phone. That's where all this is headed," he explained, adding that Apple’s more conservative approach to capex compared to competitors like DeepSeek positions them well for this future.

Addressing concerns about Apple lagging behind in the AI race, Luria emphasized the company’s unique advantage: access to vast amounts of user data. Apple owns users’ calendars, contacts, and conversation histories – data invaluable for generating personalized insights. He believes Apple understands this advantage, envisioning a future where users can request conversation summaries, automated replies, and enhanced photo editing.

"They have their our calendar, they have our contacts, they have our conversation history," Luria noted. "That's what's going to drive the really great insights for us." While acknowledging the current limitations and the time needed to seamlessly integrate AI into the user experience, Luria believes Apple’s strategy of incorporating AI directly into its products, rather than offering it as a standalone service, is the right approach.

He dismissed the idea that Apple needs a major AI partner, pointing out that they already collaborate with Google and OpenAI. Luria argued that Apple's control over the consumer makes them a desirable partner for any AI company. This allows Apple to leverage the best available AI models, incorporating them into their devices as technology progresses and models become smaller and more efficient. "Everybody wants to partner with them," he stated, "and they're going to be able to leverage those capabilities."