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These days, nothing is certain about the tech market or the world at large. Even Nvidia's seemingly bulletproof stock took a hammering on Monday, enduring a $589 billion market cap decline after China-based DeepSeek raised questions for investors about more efficient AI models.
But Apple’s stock has remained steady ahead of its first-quarter earnings report, which is set for after Thursday’s closing bell. Though it took a slight hit as DeepSeek became the talk of the tech world, Apple’s shares almost immediately rebounded by 7%. That could owe to the perception that the company trails rivals like Google and Microsoft in AI investments. The company’s fortunes aren’t tied quite so closely to generative AI’s successes and failures.
Certainly, its new tentpole technologies have underperformed, especially Apple Intelligence, Apple’s own in-house generative AI offering, introduced last summer. The small model approach stands in marked contrast to plays from OpenAI and Google. Conventional wisdom in the space holds that bigger is better. As such, many of the best-known models are trained on every piece of information developers can get their hands on, regardless of whether or not it might have a direct impact on user queries.
However, the massive black box approach makes it difficult -- or impossible -- to determine why a particular dataset is prone to hallucinations, and it’s easy to have an insufficient model, owing to a too-small dataset. As the recent rollback of Apple Intelligence news summaries proves, simply taking a hyper-focused approach to model training isn’t a magic bullet.
In Apple’s case, iOS 18 provided inaccurate summaries of news app alerts. (The news industry is already in enough trouble, without an added layer of misinformation.) Apple did the right thing by pausing the feature to return to the drawing board. But day one issues can shake investor confidence when a feature is an essential piece of a company’s future strategy.
Those challenges come at a tricky time for Apple. Over the holidays, Apple saw an 18% iPhone sales drop in China, owing to growing competition from homegrown brands like Oppo, Vivo, Honor, and Xiaomi. After being sidelined by restrictions handed down from the first Trump administration, Huawei has seen its own massive rebound in China as development continues on its in-house HarmonyOS.
It doesn’t help that Apple’s Vision Pro -- which relies on AI and machine learning models to enable room mapping, among other features -- has also underperformed from a sales perspective.
But here’s the thing: If the AI category proves to be the bubble many analysts expect, Apple’s diverse portfolio should bolster the company’s fortunes. As much of that portfolio is tied to the company’s hardware ecosystem, a key piece of Apple’s small model approach is a desire to execute as much as possible on-device.