iPhone Duo to iOS 27: What New AAPL Products Mean for Siri AI, CapEx & GOOGL

SPEAKER_1 (0:00)

Welcome in our next guest, Dave Nicholson, Chief Research Officer at Futurum. Dave, great to have you on.

I was very struck and also happy to see your notes that just came over, and thank you for putting them together so quickly as we just got all this information. You say what really matters of everything we got today is not this foldable phone, it's not the iPhone 18, it's not the watch, it's not any of that. It is the software update that is coming our way on Monday. Why is that?

David Nicholson (0:29)

That's right, Marlee. Yeah, good to be with you.

Because it sort of bears out this thesis that I've been putting forth in the face of much criticism for the last couple of years. And that is that this walled garden that Apple has, what they're now referring to as personal context, is the real value behind what Apple has to offer in AI moving forward. So this whole idea that I'll call her Shirley, so my devices don't activate, Shirley knows everything about you.

It knows your calendar, it knows your payment methods. You can say, hey Shirley, let everyone know I'm going to be late and order me a coffee. And it knows exactly what you want it to do, and it can execute on that. And one of the mentions in the event today was this idea that some of these advanced features are going to cost you a little extra money. So Apple might end up being the most profitable purveyor of AI services over the next few years on the globe.

SPEAKER_1 (1:29)

So let's look at the reaction, though. I mean, these events are not typically huge catalysts for Apple. Today is slightly different setup with the new CEO at the helm, but right now we're down about two-tenths of a percent. Is there an argument to be made that the markets are just fully underestimating what personal context could mean overall for Apple? They just haven't caught up here?

David Nicholson (1:53)

Yeah. I think this is a failure of the verticalization of analysis. People are looking at this from the perspective of the devices, and what was announced, and is the new 18 Pro Max that much better, and everybody's got a folding phone. Does the Duo really matter? Is that going to move the needle? They're missing the headline here. The headline here is all about personal context in AI.

One of my quotes is, hey, they let everyone else build the highway system. They've got several billion users that are ready to now drive on this highway system. So I think people are just missing it, frankly.

SPEAKER_1 (2:36)

You made a very striking comparison that I want to bring up here. We've talked so much about Apple being the laggard in AI, and at many points, Apple has been the laggard period. But you have a comparison. $13 billion to $700 billion. The 13, of course, is Apple's CapEx. The 700 is the CapEx for Amazon, Microsoft, Alphabet and Meta.

When you look at it like that and you apply your thesis that they may have just, because of their walled garden, won this AI race because they already have the established user base, does that mean that the rest of these names massively overspent on AI infrastructure?

David Nicholson (3:22)

I would characterize it as follows. I would say that the investment of 13 billion is going to have much higher returns than the 700 billion will across a similar time horizon. I'd say two to three years out, we'll be able to validate that and look back and say, wow, that investment from Apple was strategic.

And I think this moment with this release of iOS 27 will be seen as the beginning of their consolidation around this idea of personal context.

SPEAKER_1 (3:54)

And let's talk about this strategy because a billion dollars about per year of what Apple's spending is in a custom model that they're basically renting a Gemini model from Google. So as you look at that, is that smart capital allocation or have they opened themselves up to a strategic vulnerability because they've relied on a competitor for the core intelligence?

David Nicholson (4:21)

Well, there's a bigger question at play. And the question is, where does the value of AI really live? And is it in the leading edge of frontier models, the most expensive models, or is it in this sort of open weight universe of models that everyone else is supporting right now?

And I think the answer to your question is that, is good enough always will beat perfect in the market? And so if Apple is proving out that they have rented good enough, they don't have to be as good as the frontier model purveyors. They don't have to invest as much in CapEx to build out those capabilities, because what they'll deliver is good enough layered on top of personal context.