It’s been more than a year-and-a-half since ChatGPT was launched, and for much of that time, Apple (NASDAQ: AAPL) seemingly stood on the sidelines as its “Magnificent Seven” peers ran circles around it.

Microsoft launched Ai product after AI product with the help of OpenAI. Nvidia raced to the top of the stock charts as its GPUs became the must-have hardware component of the AI era, and Alphabet deployed a wide range of AI tools, including its Gemini chatbot and the new AI overview available on Google Search.

However, with the recent launch of Apple Intelligence at its annual World Wide Developers Conference (WWDC), Apple made clear that it hasn’t been asleep at the AI wheel.

The company unveiled a number of new valuable AI-driven features for its devices, including writing tools that can edit or change the tone of your email, a dynamic image generator that can combine different prompts to generate a single image, and an enhanced version of Siri that can better understand users and remember what you’ve been discussing. It can also bring up information in your email or calendar.

Investors clearly liked what they saw from the presentation as Apple shares jumped 7% the day after the Apple Intelligence presentation at WWDC, and continued to climb from there. As of Friday afternoon, the stock was up 9.5%.

The gains were enough to propel Apple briefly back to being the world’s most valuable company with a market cap of $3.25 trillion, and it’s currently neck-and-neck with longtime rival Microsoft as well as Nvidia, which has skyrocketed on soaring revenue and profits from the generative AI boom.

Image source: Getty Images.

Is Apple Intelligence a game changer?

While Apple may have lagged behind rivals like Alphabet and Microsoft in deploying generative AI technologies, the company has an unmatched advantage in new technology, including generative AI. That advantage is its installed base of more than 2 billion devices, all of which use Apple’s software thanks to its walled-garden approach.

As a result, the company doesn’t necessarily need the best AI to be a winner in the breakthrough technology because it has a significant advantage in its ownership of the biggest consumer-tech ecosystem in the world, anchored by the iPhone.

This digital real estate is so valuable that Alphabet is willing to pay the company $20 billion a year for Google to be the default search engine on Apple devices like the iPhone, and Apple Intelligence seems to be carrying similar clout.

Apple said at the WWDC that it was putting the latest version of ChatGPT into its devices, but according to Bloomberg, it isn’t planning to pay ChatGPT for those services even though, unlike Google Search, ChatGPT isn’t earning money from ads. It’s also costly to run the computing power that ChatGPT requires.

Instead, OpenAI seems to value the exposure through Apple’s devices, and being featured by Apple is valuable enough to OpenAI that it’s willing to forgo payment, at least for now.

The long game for Apple Intelligence, then, doesn’t seem to be as a direct revenue stream, but as a further enticement for users to upgrade their devices and stay in Apple’s ecosystem, where they spend on services like the App Store, subscription products like Apple Music, and other products like AppleCare and Apple Pay.

Is Apple stock a buy?

Apple Intelligence isn’t available yet. It’s set to debut this fall as part of iOS 18 and related operating system updates, and it will only be available on top-of-the-line iPhones like the iPhone 15 Pro and iPhone Pro Max.

Clearly, management is hoping that Apple Intelligence will convince more users to upgrade to new iPhones. It’s still unclear if that will happen, but Apple could use some help as iPhone sales have been falling, and the company’s overall growth has been sluggish. With last week’s surge, the stock looks even more expensive at a price-to-earnings ratio of 33.

Apple Intelligence could drive increased demand for iPhones, but those expectations appear to be priced in. Still, Apple Intelligence is a reminder that the company has one of the widest economic moats in tech with its broad device ecosystem, and that makes it a good bet to continue to beat the S&P 500 over the long term.

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