WEBVTT - Is Apple Winning the ‘AI Scare Trade’?

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<v Speaker 1>Bloomberg, Audio Studios, podcasts, radio news.

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<v Speaker 2>Another week, another AI induced panic in the markets.

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<v Speaker 3>An AI scare trade right now. We saw that sell

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<v Speaker 3>off over in the US, another AI scare grips of

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<v Speaker 3>the market.

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<v Speaker 2>And market is just taking a look around at any

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<v Speaker 2>possible sector that could be disrupted by AI, selling first.

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<v Speaker 4>Asking questions later.

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<v Speaker 2>Part of the reason for this week's sell off was

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<v Speaker 2>a thought experiment posted by a research group called Satrini

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<v Speaker 2>playing out some of the ways artificial intelligence could disrupt

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<v Speaker 2>the economy by twenty twenty.

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<v Speaker 1>Eight, Zaitrini Research publishing a hypothetical scenario where the agentic

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<v Speaker 1>AI commerce routing of retail payments up ends apparently the

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<v Speaker 1>E merchant subsidy businesses of names like American Express, Syncrity,

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<v Speaker 1>and Capital One, those names plunging.

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<v Speaker 2>The hypothetical scenario played into fears that have been rippling

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<v Speaker 2>through the market for a while, fears that AI could

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<v Speaker 2>make entire lines of Business Week with consequences for consumer spending,

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<v Speaker 2>real estate, and financial markets. One of the AI tools

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<v Speaker 2>getting attention right now is in thropics Claude Chatbop, which

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<v Speaker 2>promises to write code that businesses have traditionally paid programmers

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<v Speaker 2>or other companies to make Claude has even caught the

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<v Speaker 2>eye of the Pentagon, which is pressing Anthropic to give

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<v Speaker 2>it full access to the technology. On Tuesday, the company

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<v Speaker 2>released new features that had investors fearing further disruption.

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<v Speaker 3>That and thropping out with an update on Claude that

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<v Speaker 3>talked about modernizing the Cobol programming language of dated programming

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<v Speaker 3>language that IBM uses, and that set the IBM share

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<v Speaker 3>price down by thirteen percent. And so it sorts of

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<v Speaker 3>questions about where you could hide, if anywhere.

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<v Speaker 2>And there's a second concern in the market that some

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<v Speaker 2>of the biggest tech companies that place some of the

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<v Speaker 2>biggest bets on AI may not have enough to show

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<v Speaker 2>for it.

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<v Speaker 4>Most notably, you've seen all of the major hyperscalers. So

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<v Speaker 4>the companies that are really spending aggressively on AI, this

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<v Speaker 4>is your Microsoft, Meta Alphabet, Amazon. The market has become

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<v Speaker 4>a lot more impatient looking at this spending, wondering when

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<v Speaker 4>are we going to start seeing this money paying off.

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<v Speaker 2>Ryan Vlastilica covers tech stocks for Bloomberg, and he says

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<v Speaker 2>that as the AI scare trade grips the market, there's

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<v Speaker 2>one company that's been remarkably insulated.

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<v Speaker 4>Now Apple manages to be nowhere near either of these

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<v Speaker 4>central narratives right now. If you look at the two

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<v Speaker 4>major themes in the technology sector, it is concerns about

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<v Speaker 4>AI capex, which Apple isn't doing, and it's concerns about

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<v Speaker 4>AI related disruption, And it doesn't really seem like Apple

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<v Speaker 4>is really in the path of AI disruption in the

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<v Speaker 4>same way that you would say software companies are, or

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<v Speaker 4>just growing list of companies and sectors are as.

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<v Speaker 2>Most of the NASDAC has trended down in recent weeks,

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<v Speaker 2>Apple stock has often moved in the opposite direction.

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<v Speaker 4>The overall moves of the major ends aren't dictating the

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<v Speaker 4>way Apple moves. This has really been visible in days

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<v Speaker 4>when there's been a lot of AI related against in

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<v Speaker 4>the market. Things are down pretty broadly except for Apple,

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<v Speaker 4>which is up pretty solidly. So we've been describing this

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<v Speaker 4>as Apple decoupling itself from the broader market.

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<v Speaker 2>That's something Ryan says hasn't happened to this degree since

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<v Speaker 2>the days of the iPod.

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<v Speaker 4>This level of decoupling, we're at a nearly two decade long.

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<v Speaker 2>So far, AI jitters don't seem to be hitting Apple

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<v Speaker 2>as hard as its competitors, and Bloomberg's Apple reporter Mark

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<v Speaker 2>German says that's a mixed blessing.

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<v Speaker 5>If you asked Apple six months ago, would you like

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<v Speaker 5>to be an AI company at the forefront or not,

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<v Speaker 5>they would say yes. But they're extremely behind, not on

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<v Speaker 5>purpose but by accident.

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<v Speaker 2>I'm Sarah Holder, and this is the big take from

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<v Speaker 2>Bloomberg News today on the show Apple and the AI

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<v Speaker 2>scare trade. Is Apple a safe haven for investors freaking

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<v Speaker 2>out over AI? And is that a good thing for

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<v Speaker 2>the company long term? Bloomberg's Ryan Vlastilica says that Apple's

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<v Speaker 2>decoupling from the Nasdaq is notable because, if anything, Apple

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<v Speaker 2>has been a longtime market bellweather.

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<v Speaker 4>I think in a normal kind of environment, when you

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<v Speaker 4>don't have this sort of AI wildcard, it's pretty common

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<v Speaker 4>to see Apple moving somewhat more or less in line

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<v Speaker 4>with the overall market because it has sort of traditional

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<v Speaker 4>drivers like consumer spinning, consumers sentiment, overall growth rates. How

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<v Speaker 4>what is GDP doing right now? All those other factors now,

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<v Speaker 4>Applestock has been a pretty strong performer. That's why it's

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<v Speaker 4>one of the biggest companies in the world.

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<v Speaker 2>To understand just how far Apple has diverged from its

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<v Speaker 2>peers in the Nasdaq. Ryan looks at correlation.

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<v Speaker 4>Basically, you measured on a range of positive one to

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<v Speaker 4>negative one. So positive one would be complete correlation, two

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<v Speaker 4>different securities moving in complete synchronicity with each other, and

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<v Speaker 4>of course negative one would be complete inverse correlation. Say

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<v Speaker 4>oil prices in airline stocks, so if oil prices are

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<v Speaker 4>going up, airline stocks are probably going down, so that

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<v Speaker 4>would be inverse correlation.

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<v Speaker 2>And he applied that analysis to Apple.

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<v Speaker 4>So we charted out correlation between Apple and the NASTAQ

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<v Speaker 4>one hundred, which is primarily composed of these big tech companies.

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<v Speaker 4>If you want to put a number on it, it

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<v Speaker 4>fell to a correlation of think point two one.

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<v Speaker 2>That's a forty day average, and that zero point two

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<v Speaker 2>one from earlier in February was the lowest level since

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<v Speaker 2>two thousand and six. Ryan says it's bounced up a

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<v Speaker 2>little since then.

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<v Speaker 4>Apple is basically no correlation at all, which means it's

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<v Speaker 4>not really moving on the major themes that are driving

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<v Speaker 4>the overall index, the.

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<v Speaker 2>Big themes like the AI hype cycles and selloffs. Over

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<v Speaker 2>the past month, at least, Apple hasn't really been getting

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<v Speaker 2>caught up in the drama. While the mag seven is

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<v Speaker 2>down about four and a half percent so far in February,

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<v Speaker 2>Apple is up. That's after underperforming the MAG seven in

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<v Speaker 2>the longer term. Ryan says, there's a number of reasons

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<v Speaker 2>for this.

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<v Speaker 4>It's not a major spinder, and it doesn't seem like

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<v Speaker 4>it's really at risk of AI disruption in the way

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<v Speaker 4>that some of these other stocks are.

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<v Speaker 2>But that doesn't mean investors see a bet on Apple

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<v Speaker 2>as a bet against AI.

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<v Speaker 4>The fact that you can get all of these AI

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<v Speaker 4>services on the iPhone, the fact that people will be

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<v Speaker 4>accessing AI through the iPhone or other Apple products means

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<v Speaker 4>that if you are still optimistic about the potential of AI,

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<v Speaker 4>Apple isn't a terrible way to play that thesis, because

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<v Speaker 4>it is something that could see as AI proliferates increased

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<v Speaker 4>growth or adoption. People aren't going to start abandoning their

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<v Speaker 4>phones on account of this issue. As somebody told me,

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<v Speaker 4>no one is out there vibe coding of a new iPhone

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<v Speaker 4>for themselves.

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<v Speaker 2>So it's clear that investors are treating Apple as a

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<v Speaker 2>bit of an outlier right now, But it's not as

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<v Speaker 2>simple as Apple going up. While others are going down.

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<v Speaker 2>Apple shares have had their own ups and downs even

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<v Speaker 2>over the past two weeks. They're just out of sync

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<v Speaker 2>in this way that you're describing. Can this be explained

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<v Speaker 2>by investors seeing Apple as this kind of hedge against

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<v Speaker 2>AI bets or are they also responding to other kinds

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<v Speaker 2>of news coming out of the company.

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<v Speaker 4>I do think a lot of it is Apple's sort

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<v Speaker 4>of insulation from some of these a cross currents.

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<v Speaker 5>Now.

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<v Speaker 4>I was speaking to someone who basically said, the fact

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<v Speaker 4>that correlation is so low with the broader market does

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<v Speaker 4>kind of increase its value as sort of diversification within

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<v Speaker 4>the overall market, especially since you do have this sort

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<v Speaker 4>of AI upside optionality from the fact that if AI

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<v Speaker 4>really proliferates and everyone is using it, maybe that needs

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<v Speaker 4>more demand for the next generation of iPhone or other

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<v Speaker 4>Apple products like that, so you can use these things

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<v Speaker 4>on the most advanced hardware that you can get.

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<v Speaker 2>Yes, and we'll talk to Mark about some of the

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<v Speaker 2>ways that Apple is investing in AI moving forward and

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<v Speaker 2>how it's AI bets have gone so far. But I'm

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<v Speaker 2>wondering why this decoupling matters right now. What does it

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<v Speaker 2>reveal about how investors are viewing the AI race more

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<v Speaker 2>broadly because these two fears that you laid out, that

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<v Speaker 2>companies are spending too much on AI or that AI

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<v Speaker 2>is going to disrupt all these software companies, they feel

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<v Speaker 2>a little bit in intention.

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<v Speaker 4>Yes, I think you're right about that. I think there

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<v Speaker 4>is a lot of concern right now about when are

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<v Speaker 4>we going to see this payoff? And at the same time,

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<v Speaker 4>is this going to destroy everything? So those two narrios

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<v Speaker 4>have been very much president in the market, and you're

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<v Speaker 4>right that there might be some tension. But I think

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<v Speaker 4>people if you're looking around and you're trying to find

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<v Speaker 4>something that feels like a safe bet right now, Apple

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<v Speaker 4>is sort of a kind of obvious place, especially within

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<v Speaker 4>big tech, to look for something like that.

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<v Speaker 2>Coming up. Bloomberg's Mark German on how a series of

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<v Speaker 2>missteps and missed opportunities put Apple in this position in

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<v Speaker 2>the first place, and what the company is doing to

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<v Speaker 2>catch up on AI. This Winter Olympics, there was a

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<v Speaker 2>video going around from the two thousand and two Winter

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<v Speaker 2>Games in Salt Lake City. It was that year's thousand

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<v Speaker 2>meters short track speed skating final, and it's relevant to

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<v Speaker 2>today's AI race.

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<v Speaker 4>I promise this is a nine lap race and now

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<v Speaker 4>it's only one man across the line for gold, it'll

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<v Speaker 4>be over.

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<v Speaker 2>In ninety six, five skaters were competed, including Apollo Ono,

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<v Speaker 2>the American speed skating icon. By the final lap, Ono

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<v Speaker 2>is at the head of a tight pass and an

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<v Speaker 2>Australian skater, Stephen Bradbury, is dead last. But then something

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<v Speaker 2>remarkable happens and the other three leading skaters topple onto

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<v Speaker 2>the ice.

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<v Speaker 4>Say brad your class the line.

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<v Speaker 2>And Bradbury glides past them for the gold, Australia's first

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<v Speaker 2>in the Winter Games. To this day, when somebody wins

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<v Speaker 2>because the rest of the field has flamed out, Australians

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<v Speaker 2>call it doing a Bradbury. I wanted to bring Bloomberg's

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<v Speaker 2>chief Apple correspondent, Mark German into the conversation and ask him,

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<v Speaker 2>with Apple getting investor love for effectively being behind in AI,

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<v Speaker 2>is the company doing a Bradbury?

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<v Speaker 5>Well, if they're doing a Bradberry, I think they fell

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<v Speaker 5>backwards into it, because the plan certainly wasn't for them

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<v Speaker 5>to do a Bradbury. The reality is is that Apple

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<v Speaker 5>was caught flat footed, and so yes, they're getting the

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<v Speaker 5>benefit on the stock right now because of that. But

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<v Speaker 5>that's not a good thing for the long term business

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<v Speaker 5>being so behind in a core technology, and we're talking

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<v Speaker 5>about the core technology of all core technologies here.

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<v Speaker 2>So right Apple has trailed its magnificent seven peers pretty significantly,

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<v Speaker 2>at least when it comes to spending on AI, even

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<v Speaker 2>though the company famously is sitting on a lot of cash.

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<v Speaker 2>So when you think about Apple's position right now, how

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<v Speaker 2>much of the you know, separation from the pack is

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<v Speaker 2>due to a strategy or is it a result of

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<v Speaker 2>a failed strategy?

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<v Speaker 5>Oh, I absolutely think it's the result of failed strategy.

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<v Speaker 5>And then they've seen how these other companies are having

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<v Speaker 5>their own financial issues and their own problems, and they said,

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<v Speaker 5>you know, maybe it's kind of a good thing that

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<v Speaker 5>we failed, So maybe let's turn the failed strategy into

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<v Speaker 5>our strategy. Is that what's happening I think to some extent.

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<v Speaker 2>Yeah, is that what you're hearing from people at Apple

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<v Speaker 2>that they want to lean into this now?

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<v Speaker 5>Well, no, I haven't heard specifically they want to lead

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<v Speaker 5>into it, but they're you know, very careful when it

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<v Speaker 5>comes to investing. They've had opportunities to buy you know,

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<v Speaker 5>major AI companies like Mistral out of France and Perplexity,

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<v Speaker 5>that search engine AI app, and they've chosen not to

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<v Speaker 5>make those major investments. They're partnering with Google to help

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<v Speaker 5>them build their own new Apple Foundation model using Gemini.

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<v Speaker 5>So they're going at it very slow after trying to

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<v Speaker 5>race into it and it blowing up in their faces.

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<v Speaker 5>I mean, Apple Intelligence lags behind the competition significantly. They've

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<v Speaker 5>been trying to release this new version of Siri now

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<v Speaker 5>for two years that uses AI to let you tap

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<v Speaker 5>into your personal data and on screen content and control

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<v Speaker 5>applications in a more precise way. It's going to take

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<v Speaker 5>them another you know, three to six months, maybe even

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<v Speaker 5>longer to get those features out. They're not going to

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<v Speaker 5>launch their first chatbot into the tail end of this year,

0:12:23.720 --> 0:12:27.000
<v Speaker 5>so they're definitely behind by any metric, and trust me,

0:12:27.120 --> 0:12:28.360
<v Speaker 5>it wasn't supposed to be this way.

0:12:28.679 --> 0:12:31.800
<v Speaker 2>In some ways, Apple is being rewarded by investors for that.

0:12:32.240 --> 0:12:36.319
<v Speaker 2>Can you talk more about how you're viewing this decoupling dynamic.

0:12:36.600 --> 0:12:41.199
<v Speaker 5>I think investors have realized that Apple is failing in AI,

0:12:42.040 --> 0:12:45.400
<v Speaker 5>and they're seeing Apple as a company that's very focused

0:12:45.440 --> 0:12:48.000
<v Speaker 5>on the hardware, and if you look at you know

0:12:48.200 --> 0:12:52.720
<v Speaker 5>investments and portfolio diversification. You know, Apple really is not

0:12:52.840 --> 0:12:55.719
<v Speaker 5>an AI company. It's a hardware company, whereas all these

0:12:55.760 --> 0:12:59.319
<v Speaker 5>other companies have become AI companies. And it's not the

0:12:59.320 --> 0:13:01.199
<v Speaker 5>way it was supposed to be. Apple was supposed to

0:13:01.240 --> 0:13:04.280
<v Speaker 5>become an AI company by now, but it's diversified because

0:13:04.280 --> 0:13:04.880
<v Speaker 5>it's simply not.

0:13:06.000 --> 0:13:08.400
<v Speaker 2>How does the company think about its place in the

0:13:08.440 --> 0:13:09.040
<v Speaker 2>AI race.

0:13:09.360 --> 0:13:11.920
<v Speaker 5>It depends who you're asking, It depends when you're asking them.

0:13:12.000 --> 0:13:14.920
<v Speaker 5>If you ask them in an official setting, they'll probably

0:13:14.920 --> 0:13:16.560
<v Speaker 5>tell you that they think they're doing a great job

0:13:16.559 --> 0:13:20.280
<v Speaker 5>in AI. The reality is is that they're trailing all

0:13:20.320 --> 0:13:25.040
<v Speaker 5>their competitors in AI. Their lms are subpar, their models

0:13:25.480 --> 0:13:28.640
<v Speaker 5>for all intentsive purposes or subpar. Their integration of AI

0:13:28.760 --> 0:13:32.800
<v Speaker 5>across the software stack is subpar. They're only really getting

0:13:32.800 --> 0:13:36.160
<v Speaker 5>religion now on using AI to run the company, so

0:13:36.200 --> 0:13:37.680
<v Speaker 5>they are very much far behind.

0:13:37.840 --> 0:13:40.760
<v Speaker 2>Apple has declined to comment on Bloomberg's reporting about these

0:13:40.840 --> 0:13:41.640
<v Speaker 2>AI efforts.

0:13:42.120 --> 0:13:46.080
<v Speaker 5>Will they turn things around, Absolutely, But will they be

0:13:46.160 --> 0:13:48.880
<v Speaker 5>pushed to the forefront. No. But I think with the

0:13:48.960 --> 0:13:52.080
<v Speaker 5>right combination of models and the combination of their hardware,

0:13:52.320 --> 0:13:55.040
<v Speaker 5>I think from an AI hardware perspective, they could definitely

0:13:55.080 --> 0:13:55.600
<v Speaker 5>be a leader.

0:13:56.240 --> 0:13:59.000
<v Speaker 2>Well, Apple does have several AI hardware products on their way.

0:13:59.000 --> 0:14:00.320
<v Speaker 2>Tell me a little bit more about those.

0:14:00.600 --> 0:14:03.920
<v Speaker 5>So they're working on three main ones. One is a

0:14:04.000 --> 0:14:06.959
<v Speaker 5>version of air pods with cameras, One is smart classes

0:14:07.000 --> 0:14:10.000
<v Speaker 5>with cameras, and one is a necklace slash pendant that

0:14:10.000 --> 0:14:11.640
<v Speaker 5>you can wear on your shirt or run your neck

0:14:11.640 --> 0:14:14.840
<v Speaker 5>with cameras. And the idea is to use visual intelligence

0:14:14.880 --> 0:14:18.160
<v Speaker 5>the environment around you to feed data into sery for

0:14:18.200 --> 0:14:21.280
<v Speaker 5>it to help you take action. One classic example is

0:14:21.400 --> 0:14:23.360
<v Speaker 5>you know, right now, if you're wearing air pods or

0:14:23.440 --> 0:14:25.920
<v Speaker 5>using an Apple device while on a walk and you

0:14:25.960 --> 0:14:28.120
<v Speaker 5>have turned by turn directions on in maps, it'll tell

0:14:28.160 --> 0:14:30.360
<v Speaker 5>you, you know, make a turn four hundred and fifty feet

0:14:30.640 --> 0:14:33.720
<v Speaker 5>or in one mile or whatever. Now it could tell

0:14:33.760 --> 0:14:37.160
<v Speaker 5>you make a right turn past the gray three story

0:14:37.200 --> 0:14:40.520
<v Speaker 5>building because it can see what's around you, not only

0:14:40.760 --> 0:14:41.520
<v Speaker 5>no distances.

0:14:41.800 --> 0:14:44.160
<v Speaker 2>So it's not investing in chapbots to the same scale

0:14:44.200 --> 0:14:46.160
<v Speaker 2>as some of its competitors, but it is investing in

0:14:46.200 --> 0:14:49.040
<v Speaker 2>these hardware products. Can you talk about how that's a

0:14:49.080 --> 0:14:51.960
<v Speaker 2>different strategy than some of the other mag seven companies

0:14:52.080 --> 0:14:55.160
<v Speaker 2>and why you think it's developed that way, Well, they.

0:14:55.040 --> 0:14:57.640
<v Speaker 5>Are building a chatbot. They are going to revamp theory

0:14:57.680 --> 0:15:00.400
<v Speaker 5>around this chatbot type of interface later this year and

0:15:00.720 --> 0:15:05.520
<v Speaker 5>deeply integrate these Gemini models across iOS, IPOs and macOS

0:15:05.560 --> 0:15:07.320
<v Speaker 5>with the next major versions that are going to be

0:15:07.320 --> 0:15:09.280
<v Speaker 5>introduced in June and released in September.

0:15:09.320 --> 0:15:10.680
<v Speaker 2>But they're late on that front.

0:15:10.880 --> 0:15:14.480
<v Speaker 5>Yeah, they're you know, pretty late. And then in terms

0:15:14.480 --> 0:15:17.280
<v Speaker 5>of hardware, you know, Apple makes eighty percent of the

0:15:17.360 --> 0:15:20.600
<v Speaker 5>revenue from products. They're a hardware business. They have not

0:15:20.760 --> 0:15:23.240
<v Speaker 5>really shown a way that they're going to be able

0:15:23.280 --> 0:15:26.280
<v Speaker 5>to monetize AI in the near future from a software

0:15:26.400 --> 0:15:28.600
<v Speaker 5>stack standpoint, and so the only way they're going to

0:15:28.600 --> 0:15:31.920
<v Speaker 5>be able to monetize AI to any considerable degree for

0:15:32.000 --> 0:15:34.840
<v Speaker 5>the underlying business is going to be through hardware. So

0:15:34.880 --> 0:15:37.840
<v Speaker 5>from that standpoint, AI hardware is the game in town

0:15:37.920 --> 0:15:39.920
<v Speaker 5>for Apple to augment iPhone revenue.

0:15:40.560 --> 0:15:43.080
<v Speaker 2>So if investors get past their ditters about AI and

0:15:43.080 --> 0:15:46.080
<v Speaker 2>they decide in whatever way that the technology will be

0:15:46.160 --> 0:15:51.000
<v Speaker 2>transformative will support high company valuations and massive spending, what

0:15:51.040 --> 0:15:52.520
<v Speaker 2>does it mean for Apple from.

0:15:52.440 --> 0:15:57.040
<v Speaker 5>An investment standpoint? I just don't see how Apple being

0:15:57.120 --> 0:16:00.880
<v Speaker 5>so behind and not showing any engineer in terms of

0:16:00.920 --> 0:16:04.960
<v Speaker 5>AI makes them an interesting company to invest in right

0:16:05.280 --> 0:16:08.080
<v Speaker 5>They're an interesting company to invest in because everyone knows

0:16:08.080 --> 0:16:10.360
<v Speaker 5>they're going to come out with great hardware. Everyone knows

0:16:10.560 --> 0:16:13.360
<v Speaker 5>that they're forecasting solid results for the current quarter. Everyone

0:16:13.400 --> 0:16:15.480
<v Speaker 5>knows they're going to continue making a ton of money

0:16:15.760 --> 0:16:20.120
<v Speaker 5>on the devices. But in terms of future upside, it's

0:16:20.200 --> 0:16:26.280
<v Speaker 5>just not exciting to investors right now in my view.

0:16:27.400 --> 0:16:30.360
<v Speaker 2>This is the Big Take from Bloomberg News. I'm Sarah Holder.

0:16:30.720 --> 0:16:33.320
<v Speaker 2>To get more from The Big Take and unlimited access

0:16:33.360 --> 0:16:37.239
<v Speaker 2>to all of Bloomberg dot com, subscribe today at Bloomberg

0:16:37.280 --> 0:16:40.760
<v Speaker 2>dot com Slash podcast Offer. If you liked this episode,

0:16:40.880 --> 0:16:43.520
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0:16:43.560 --> 0:16:46.440
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0:16:47.240 --> 0:16:49.240
<v Speaker 2>Thanks for listening. We'll be back tomorrow