Apple's stock has faltered, but a Steve Jobs moment in AI may be on the horizon

By Emily Bary

Wall Street got things wrong on Apple ahead of its iTunes Store launch, and it might be making the same mistake with a potential AI app store on deck

Apple Inc. is perceived to be behind the curve when it comes to artificial-intelligence efforts. But what if Chief Executive Tim Cook is about to stage his big "Steve Jobs" moment?

Melius Research analyst Ben Reitzes sees that as a possibility. There have been reports that the company has talked to Alphabet Inc.'s (GOOGL) (GOOG) Google and Baidu Inc. (BIDU) about the possibility of using their AI engines in the iPhone. That has sparked some doubts about Apple's (AAPL) own AI capabilities, but Reitzes asks if investors "really think" Apple executives are talking to AI leaders "because they have nothing going on?"

Rather, he thinks Apple leaders are "running around speaking to rivals because they are channeling their 'inner Steve' persuasion skills." Back in 2003, he noted, people thought Jobs was crazy for chasing down music-industry executives in pursuit of what ended up being the iTunes Store, which changed the company's course for the better.

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That future wasn't immediately clear to Wall Street when Jobs was having his industry conversations. "One meeting in particular was with Vivendi's Universal Music, and reports surfaced that Apple had the intent to buy it," Reitzes wrote. "The stock fell ... and was trading at the value of its cash on the books - something hard to believe now."

Apple then replicated its iTunes strategy shortly after the iPhone's launch, when it rolled out the App Store for third-party applications. "Apple doesn't necessarily make all the apps - they make integrated platforms that make them better," Reitzes noted.

A third act may be coming in the realm of AI. "Today, we have a situation where many of the 'leaks' may be missing it again," he continued. Users will come to need "a new kind of 'App Store' in a world where we type or speak securely into generative AI applications that get stuff done," and Apple looks poised to build that.

"We think this vision monetizes their mobile real estate yet again, potentially replacing or augmenting the money it receives for Google's default search placement in Safari," Reitzes said. "The Apple we know is likely not paying for anything - Google is the one who needs them."

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Google is trying to prove itself, in its own way, in the world of AI. Rival Microsoft Corp. (MSFT) got a boost in the eyes of Wall Street for its investment in OpenAI, the creator of ChatGPT. Google, meanwhile, has dealt with various blunders around AI features that weren't quite ready for prime time.

-Emily Bary

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03-25-24 0918ET

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