Fed “Fumble”, Disney Disappointment, and iPad Promises 5/7/24

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Apple ORG now reportedly developing its own chip to run AI software inside data centers. According to the Wall Street Journal, our Deer DuBose is taking a look at the AI chip arms race for today's tech check. Morning, Dee PERSON. Good morning, Carl PERSON.

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I know you're going to like this name. It's apparently codenamed project ACDC for Apple ORG chips in data center. And here may lie Apple ORG's advantage in the Gen AI race. This company has the most experience in success in designing its own custom silicon, even if it has been a laggard in terms of laying out that broader AI strategy to investors. At the Apple event in Cupertino this morning that Steve was covering, the company debuted its latest M-series processor, the M-4 PRODUCT, which it called a, quote, outrageously powerful chip for AI. But AI chips for data centers, that's a different beast and an unproven area. And while that M-line of silicon has improved power efficiency,performance across Apple ORG devices, Apple has struggled in other areas like developing its own cellular wireless chip to replace Qualcomm ORG silicon. Now, the journal reports that Apple's working with Taiwan GPE semi on a server chip that runs AI models. So that's the inference part of AI versus training. But if that is successful, that could give Apple ORG more control over its AI products and ambitions when it does lay that out, expected at WWDC in a few weeks. Now, as we've discussed, nearly, all the mega caps are trying todevelop their own Gen AI PRODUCT custom in-house chips. It's about cost and efficiency and countering invidia's dominance. Billionaire investors, Stanley Drucken Miller PERSON, talked about Gen A.I. And trimming his Nvidia position on Squawk this morning. We've had a hell of a run.

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A lot of what we recognized has become recognized by the marketplace now. Long term, we're as bullish on AI as we've ever been. The big payoff might be four to five years from now. So AI might be a little overhyped now, but underhyped long term. So he just trimmed his position. He said he wouldn't be surprised

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if he was holding onto Nvidia for the next five to 10 years in some way. But to that sentiment, that longer term sentiment, of course, nobody's close to replacing Nvidia GPUs anytime soon. But Apple ORG and other mega caps, other chip makers too. They're playing the long game here. Silicon is a very key piece of that strategy. And that will power their apps and products, which is ultimately what they're looking to make, girl.

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A couple of reflections. One, I was fascinated by Drucken Miller's answer that he can't imagine not owning Nvidia on or off for the next five to 10 years. And then just a reminder that Apple ORG's only been in the chip business for what, a decade maybe?

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Only, yeah, but I mean, it's a bit of a head start over some of the mega caps. This is true, but I mean, you look at the success that it's had with that M series PRODUCT, right? And how it's made improvements across iPhones PRODUCT and iPads and even the laptops.Apple ORG would tell you that it's been working on AI chips for a long time as well. But this is where it's been a lot harder, right? We talked to a lot of the different mega caps about the chips they're making, Google ORG's TPUs in-house. And they say that they're getting better and better. But I think the real test is who's using them, right?They're all being used inside of their cloud infrastructure. Can you use it for inference? Can you use it to build the foundational models? The race is happening at this level, and that is going to set the ground for the race when we get into the apps and the products, which everyone's sort of looking forward to.

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It's amazing. I mean, back then it was just going vertical to get better hold of their own supply chain for goods.

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Now it's a much more, a much bigger Tam overall. A fascinating, a fascinating look at an important story today, Dee PERSON. Thanks.

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Apple is not the only company unveiling new AI hardware today. Deer Boza has more in today's

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tech check. Hi, Dee. Hey, Tyler. So Google's taking a very different tact. Its latest pixel is a mid-range phone starting at $499.9. That's cheap in the smartphone world. It includes some of the Gen.A.I. Bells PRODUCT and whistles of priceier models that are becoming a feature of hardware AI upgrade cycles. But to put this in context, guys, this is very small potatoes for Google ORG and the broader Gen. Gen.A.I. race, pixel devices, they claim less than 5% of the U.S. GPE market. The real batterground, of course, is searched as investors parsed through every data point, every talking point, for signs that Gen AI is weighing on Google ORG's dominance.So speaking of that billionaire investor, Stanley Drucken Miller's PERSON love of AI chatbot, perplexity. His comments on Squawk this morning, that could be fodder for the Bulls ORG. Have a listen.

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I love perplexity. Although kids on the West Coast weren't using chat GPT or Google ORG anymore. They were using this thing called Perplexity AI PRODUCT. So I, of course, tried it out. And it was just unbelievable. It's an answer machine.But the speed, but the depth of the answers and the quality, and then the fact that they give you the sources, if you want to go deeper, it was nothing like I've ever seen.

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He added that there's a land grab going on in the answer machine business. I kind of like the ring of that. And it is, of course, a big test to take on Google ORG. Now, the latest numbers, though, from stat counter, they suggest that Google ORG's pretty resilient. So people like Drucken Miller and, as he calls it, kids here on the West Coast LOC. They may be using Gen.I chatbots over traditional search, but most users are still using Google ORG. And now with a twist, what Google calls search generative experience, SGE, which is like a chatbot light, and maybe getting traditional users familiar with Gen AI PRODUCT before fully jumping in on the cloud side as well, guys. I'm told that the reprioritization of work towards AI within the company itself continues that cloud computing unit, adding headcount and building out its sales team. continues that cloud computing unit, adding headcount and building out its sales team.

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Remind me, Dee, what is Google's principal venture or the tip of its spear into the consumer market with AI? Is it Gemini PRODUCT? What is it?

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The fact that you are asking that question, Tyler, kind of tells you everything you need to know.

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It's not obvious. It's not perplexity. It's not chat. G.P.T. It's not caught.

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The answer is it's Gemini PRODUCT. But, and this has even tripped me up, SGE ORG search generative experience is separate. That goes into their search engine. Gemini PRODUCT is something different. They're different teams within the organization.And that there is part of the problem is that doesn't really have this cohesive message with one chatbot that people know and use.

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Dear Jay, is the SGE ORG thing when you are asking, were you Googling something? Now it has all these drop-down arrows after the...

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Yes. So that that is... So you're trialing it. I don't know, Kelly PERSON, if you have to opt in or not.

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But this is like how they're getting people to get used to the chat bot. Yeah, no, and it's so funny, it's uncanny, you say that, because I've been using it lately, and it's like, I ask it, it's usually for, like, recipes, and I'll say, you know,

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give me, you know, something cornbread, and it'll say, well, are you asking about, and it's kind of prompting me through it, and I'm thinking this, I don't remember it being like this in the past. Kelly PERSON, here's an important question for you. Are you seeing advertisements?No, actually, I don't know. I try to ignore, you know, condition to ignore them, but I use perplexity all the time as well. I love it. I reckon it was exactly right, but the only friction I find is opening the app. And soyou just wonder at some point, if I could just ask Siri, if my hands are busy, you know, I'm so defaulted to going to Google ORG, it's hard to untrain myself. No, and

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everyone now is starting to get their go-to chatbot. You love perplexity. I'm chat GBT4 PRODUCT, gal myself. I know lots of people who love Claude PERSON. The battleground's being drawn right now. Yeah.No, my husband uses Chad or Caleb PERSON or so. I don't know. There's so many of them. Deirdre PERSON, thank you. We appreciate it.

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