And as I highlighted in that review, Apple amongst its Mag 7 peers, seems at the moment, “the most relatively relaxed. From the outside”.
But the Bigger Picture may be that Apple may have plans to extend AI and its Apple Intelligence to cloud servers for developers. And that is worth unpacking this holiday weekend.
It’s a topic I discussed last year as ‘Apple’s ‘ACDC’ AI Server chips’ strategy, where ACDC stood for AI chips in cloud servers. It seems that idea may have legs in the current AI environment.
“Apple over the past few years considered launching a business renting out its servers to the millions of developers that create apps for the iPhone and Mac, in what would be a hugely ambitious move that would pit it against Amazon, Microsoft and Google.”
And yet a very different move relative to those AI cloud providers.
“The idea discussed was for Apple to rent out servers running on Apple’s own chips, said three people involved in the effort. That reflects Apple’s successful development of its own chips, which have given its phones and laptops a big edge over rival devices—and which are also now being used in Apple’s data centers for some artificial intelligence services.”
“Apple executives think its chips perform so efficiently that developers would end up spending less on its cloud service than they do on major cloud firms now, especially for intensive AI applications. The status of the project is, however, unclear. The biggest proponent of the idea, a cloud executive called Michael Abbott, left the company in 2023. While discussions were still active as of the first half of 2024, it’s not known whether they have continued.”
It’s understandable why the idea was under consideration:
“Even if Apple doesn’t go ahead with the service, the internal discussion demonstrates the strength the company has in semiconductor design, more than other tech companies that have designed their own chips—including Microsoft, Amazon and Google. On Wednesday, The Information reported that Microsoft was scaling back its in-house chip ambitions following delays.
Apple Silicon has of course been a key differentiated strategy for the company both against Microsoft Windows PCs, and Google’s Android Smartphone platforms. While those two ecosystems dominate the world in units, the majority of the economics in those platforms accrue to Apple.
“Apple has tested its chips for servers to process Apple Wallet transactions in the cloud, showing it could save money on internal infrastructure costs, the people said. Apple’s Photos and Apple Music apps have also tried using the chips and saw improved performance in areas like search, said people familiar with the effort.”
“While Apple has beenstruggling to keep up in AI, its chips have emerged as a potential bright spot for the company in powering more basic types of AI. It launched its first chip for its iPad and iPhone in 2010 and started adding specialized AI capabilities in 2017. Apple’s chips are efficient at running many types of inference, which means using pre-trained AI models to interpret new information, such as computer vision found in the Vision Pro.”
It’s all about AI Scaling ahead, in all its forms, across all types of devices.
“Big tech companies and AI startups are spending tens of billions of dollars annually on Nvidia chips, which were originally designed for graphics processing in gaming, for the intensive process of training large AI models. The launch of ChatGPT in late 2022 has spurred even larger models that require more processing horsepower, mostly using Nvidia chips.”
“Apple has mostly resisted that push to spend heavily on Nvidia chips for AI training. Instead it has prioritized renting chips from Amazon and Google clouds, spending around $7 billion annually to do so, said people familiar with the company’s cloud spending. Only a small portion of that spending is for AI training, however.”
“The benefit of using outside clouds for training is that Apple won’t be stuck with a large inventory of Nvidia chips after they’ve trained the models.”
“But increasingly, as companies seek to make an actual business off the AI models they’ve spent billions training, inference will become a larger portion of AI computing. That’s where Apple thinks it will find an advantage over competitors.”
And Apple has been doing AI/ML (machine learning) inference, before inference was cool.
“Apple has been doing AI on their chips for the longest that anyone has been doing it,” said Amit Kumar, CEO of Dragonfruit, a company that uses Apple chips to power a security camera analysis product for retailers. “While Nvidia was doing gaming, Apple was doing actual AI compute.”
An Apple cloud service along these lines would potentially expand Apple’s business in new ways:
“Launching a cloud service for developers would help expand Apple’s services revenue, one of Apple’s last remaining areas of growth, at a time when that business is in danger. New laws and court orders threaten Apple’s lucrative App Store fee it collects, and the U.S. Justice Department is challenging the $20 billion default search deal it collects from Google every year.”
And the service would be new type of offering for developers in the Apple ecosystem and potentially beyond.
“Instead of having to rely on a large enterprise sales team like a traditional cloud firm, Apple would assign its developer relations team to handle developers who sign up for the service, the involved people said.”
It’d be a new foray for Apple, unquestionably:
“Still, launching a cloud service would also be an unusual move for a company that has been so steadfast in its commitment to consumer businesses.”
“But some large companies have shown the ability to remake themselves. Google, a consumer advertising business for decades, struggled for years to ramp up a cloud-server business but eventually got over the hump. By 2024 Google Cloud accounted for $43.2 billion in sales, more than 12% of Google-parent Alphabet’s total revenue.”
The origins of this idea are also of note, related to the Siri service that is taking up a lot of current Apple cycles around AI and Apple Intelligence. Especially with voice-enabled Google Gemini in the mix:
“The cloud service idea took root inside Apple with Project ACDC, which stands for Apple chips in data centers. As a first step, Apple last year launched Private Cloud Compute, which uses high-end Mac chips inside Apple data centers to run parts of its new AI system that can’t run on-device, such as more complex requests.”
“Siri was the first team to try out servers powered by Mac chips for text-to-speech capabilities. The servers provided a performance improvement in accuracy and cost reduction compared to traditional servers with Intel chips, said people involved in the project.”
“The ACDC team also recruited Photos and Apple Music to try out the system, said people familiar with the effort.”
“Internally, Apple has referred to its private cloud using its own chips as its own Amazon Web Services, the cloud computing division of Amazon, said people who worked on the project.”
Appropriate as Amazon and Meta are in the process of thinking through their own AI uses for AWS and other cloud services.
The whole piece is worth reading for additional details and nuance.
But if Apple executes on this Cloud strategy, it could potentially offer a very differentiated AI Inference service to Developers at Scale.
And while it would of course compete with Nvidia, and the major cloud providers, Amazon, Microsoft, Google, Oracle, Nvidia and others, it could be a service that uniquely leverages Apple multi-hardware platform, ecosystem and applications, daily serving almost 2.5 billion users.
That strategy would indeed by a relative game-change in This AI Tech Wave . And a Bigger Picture worth pondering. Stay tuned.
(NOTE: The discussions here are for information purposes only, and not meant as investment advice at any time. Thanks for joining us here)
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