Two big tech companies could be on the cusp of reaping significant rewards from artificial intelligence (AI): Apple and Alphabet. These companies, through their respective operating systems, iOS and Android, are uniquely positioned to capitalize on the AI revolution.
The integration of AI into existing apps on phones is one of the most promising avenues for AI deployment. Dating apps like Hinge, Tinder, and Bumble, and holiday and flight booking sites like Booking.com, are examples of existing apps which can significantly enhance user experience through AI integration. AI assistants can provide personalised recommendations, improve matching algorithms, and offer real-time customer support. This improved functionality is expected to drive higher engagement and conversion rates, leading to increased revenue for these apps.
For Apple and Alphabet, this scenario presents a golden opportunity. Both companies control the dominant mobile operating systems and app stores via Apple’s App Store and Google Play Store. They charge app developers a percentage of their revenue, typically around 15-30%. As apps generate more revenue through AI-enhanced features, Apple and Alphabet stand to gain substantially from the increased app store commissions. This symbiotic relationship means that as third-party apps flourish, so do the platform owners.
Beyond the enhancement of existing apps, standalone AI applications represent another future opportunity. These applications, built specifically around advanced AI capabilities, will likely become increasingly useful and critical tools for users. AI-powered personal assistants, for example, educational tools, and creative applications are expected to proliferate.
Given that smartphones are currently the primary medium through which people interact with digital services, it’s natural that these standalone AI applications will be primarily marketed and accessed via mobile devices. Apple and Alphabet, through iOS and Android, will once again be the gatekeepers of this new wave of applications. They will benefit not only from app sales and in-app purchases but also from the increased usage of their platforms, leading to more data collection and better optimization of their own AI services.
AI is also likely to drive a new cycle of smartphone and device upgrades. Advanced AI applications require significant processing power and specialised hardware, such as neural processing units (NPUs). This necessity will spur consumers to upgrade to newer, more capable devices.
Apple, with its tight integration of hardware and software, stands to benefit from this trend too. The company’s ability to design custom silicon, like the M1, M2, and A-series chips, allows it to optimise its devices for AI tasks, providing a seamless user experience. As AI applications become more demanding, consumers will be drawn to the latest iPhones, iPads, and Macs, driving Apple’s hardware sales.
Alphabet, though not a direct hardware manufacturer on the same scale as Apple, will benefit through its Pixel line of smartphones and its partnerships with other Android device manufacturers like Samsung. As Android devices incorporate more AI capabilities, consumers will seek out the latest models, benefiting the broader Android ecosystem.
So, rather than betting on which company might develop the best AI in the tech world, investors could play it safer by focusing on the owners of smartphone operating systems and device manufacturers.
Rather than looking to frontier start ups and technology disrupters, the way to play AI may be to play it safe with some of the existing leaders in technology.
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