Flight to Apple

Recently, Apple stock has been behaving like a flight to tech safety investment. The more people panic about hyperscaler capex, the more attractive Apple stock seems to become to them. But do we think this is rational? Well, I will have more to say about the hyperscaler capex panic (spoiler: I think it's mostly short term nonsense), so today let's just consider Apple’s AI strategy.

Apple has distribution in spades, and as long as the phone remains the prevalent consumer device they will retain their distribution edge. I agree with Nilay Patel at The Verge, I think the post phone device is **drumroll** still the phone. Yes, AI devices that passively monitor the environment and proactively advise may find a place, and that place is likely to be second place. The phone is too perfect a form factor for so much of what humans do. 

So, I think Apple will retain its distribution advantage for a long time. Never say never, but I’m close to saying it. As such, I think their capex light strategy of Google powering Siri is solid in the medium term, and by far the most profitable path. But medium term is doing a lot of work. Long term there is risk. At some point Google might decide their AI capabilities allow Android to meaningfully differentiate from iOS, and at that point they might be less willing to power Siri. Apple has 2 hedges: First, as long as their aforementioned distribution is attractive to Google for the search deal, no boats will get rocked, and Siri will keep on rocking (in the almost free world). Second, as long as multiple labs stay competitive in AI, Apple would have other licensing options for Siri if Google got cold feet.

The nightmare scenario for Apple, would be Google winning in AI, and tripling down on Android. Apple would not own the core tech to keep Siri humming. Not likely, but not impossible. 

Disclosure: I have no position in Apple