Tuesday, June 18, 2024

Meet Apple’s new $186 billion market opportunity

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This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Some might think Apple Inc‘s (NASDAQ: AAPL) best days are behind it. Revenue growth has ground to a halt. The company’s biggest new product in years, its Vision Pro mixed reality headset, might be a commercial flop. Apple’s reign as the largest company in the world based on market cap has ended. It’s now in third place behind Microsoft and Nvidia.

Don’t give up on Apple just yet, though. Anytime people have done so in the past, the company has reinvented itself and gone on to achieve tremendous success. Apple just might do it again. And the company could have a clear path to making it happen. Meet Apple’s new $186 billion market opportunity.

Living on the edge

Artificial intelligence (AI) could be bigger than the internet. That’s not just my opinion. Alphabet CEO Sundar Pichai and Altimeter Capital CEO Brad Gerstner think so. Nvidia CEO Jensen Huang believes that one specific type of AI — generative AI — will be bigger than the internet all by itself.

So far, AI development has been primarily done in the cloud. That’s why Nvidia’s data center revenue soared 427% year over year in the first quarter of 2024 and now makes up nearly 87% of the company’s total revenue.

But this story could soon change as edge AI gains momentum. Edge AI is the deployment of AI on devices near where data is created (on the “edge”). There are several advantages of edge AI compared to AI on the cloud, including lower latency (delays in data transfer) and bandwidth requirements along with increased privacy.

How big could the edge AI market be? Estimates vary, but there’s a consensus that the market will grow rapidly. Market researcher Market.us predicts the edge AI market will expand by a compound annual growth rate (CAGR) of 25.9% to $143.6 billion by 2032. Fortune Business Insights projects a CAGR of 27.5% with the edge AI market topping $186 billion by 2032.

Why Apple could be the leader in edge AI

Morgan Stanley wrote in a 2023 report that it believes “Apple will emerge as one of the key winners” in the edge AI market. I wholeheartedly agree with that assessment.

Edge AI must run on devices. Apple has over 2.2 billion devices in active use throughout the world. This number largely consists of iPhones, but the company also has other devices, including computers and wearables.

Importantly, Apple already has chips powerful enough to run AI apps on its devices. The company’s next-generation iPhone chip on the way will almost certainly provide even better AI performance.

Apple has the ecosystem to foster edge AI software development by other companies. It also has deep pockets to fund internal R&D and acquisitions to advance edge AI technology going forward.

Some might be excited by Apple’s AI announcements at its Worldwide Developers Conference (WWDC) this week. Others could be disappointed. Either way, any WWDC revelations are only the beginning. Look for Apple to continue to launch edge AI functionality over the coming years.

Does this opportunity make Apple stock a no-brainer buy?

Even for a company that generates as much revenue as Apple does, the edge AI market opportunity is big enough to move the needle significantly. But does this opportunity make Apple stock a no-brainer buy? Not necessarily.

Apple could squander its opportunity. It’s possible that edge AI won’t be as impactful as many expect. I don’t expect either to happen, though. However, Apple won’t be a no-brainer buy until there’s sufficient reason to believe the company will return to strong growth. We’re not at that point yet, but we could be relatively soon.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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