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Analysis: What Investors Get Wrong About Apple and Google · In the Loop AI

0:03
Ejaaz: There are two companies currently worth trillions of dollars that I think are
0:07
Ejaaz: the most undervalued companies in the world right now.
0:10
Ejaaz: Google and Apple are a tale of two tech giants that have taken a very different approach to AI.
0:16
Ejaaz: Google, on one hand, has poured billions of dollars to create some of the world's
0:20
Ejaaz: leading AI models, going from a corporate has-been to one of the titans of AI.
0:25
Ejaaz: They have their own custom GPUs rivaling NVIDIA. They have one of the largest
0:30
Ejaaz: user bases in the world with Gmail, Android, YouTube. I could go on.
0:35
Ejaaz: Apple, on the other hand, has taken the opposite approach. They haven't invested
0:38
Ejaaz: in AI at all. They've been late to update their AI assistant Siri.
0:42
Ejaaz: They haven't spent any money to hire AI geniuses like Zuckerberg at Meta.
0:47
Ejaaz: But despite this, I think these two companies are poised to be the biggest companies in the world.
0:52
Ejaaz: So in this episode, we're going to give you the bull case for Google and Apple
0:56
Ejaaz: revealing not just why you should buy their stocks, but also why these two companies
1:00
Ejaaz: in particular are very unlikely allies.
1:03
Josh: Yeah, I think this episode is going to surprise a lot of people because there's
1:07
Josh: this gross disconnect between public market sentiment and public sentiment where
1:11
Josh: stocks are trading very high and people don't quite agree with that.
1:14
Josh: So I think in this episode, we have a lot of what most would have perceived
1:18
Josh: to be contrarian takes about where these companies have come from and where
1:21
Josh: they are headed to and how we are actually much more optimistic than I think
1:24
Josh: a lot of people think on these companies.
1:26
Josh: So Ejaz, maybe you could help us start with the bull case for Google,
1:29
Josh: which is one of the first companies we're going to be talking about here.
1:32
Ejaaz: What if I told you that Google currently worth $3.4 trillion is an absolute bargain buy right now?
1:38
Josh: That's a crazy take.
1:39
Ejaaz: You call me crazy. But here's why I think Google is actually worth $10 trillion
1:44
Ejaaz: as an AI giant currently masquerading as a simple, humble search engine.
1:50
Ejaaz: I've got four reasons for you.
1:51
Ejaaz: Number one, Google has the best AI models.
1:54
Ejaaz: You have Google Gemini, which is currently crushing across all benchmarks and
1:58
Ejaaz: beating ChatGPT on so many different fronts.
2:00
Ejaaz: You have VO3, which is their text-to-video model, which is creating cinematic
2:04
Ejaaz: masterpieces in a matter of seconds.
2:06
Ejaaz: You have Nano Banana, their image generation model, which not just creates really
2:11
Ejaaz: good images, but also allows you to edit them.
2:13
Ejaaz: And finally, who can forget about Google's Alpha Gemini series,
2:17
Ejaaz: their science AI models, which have won not one, but two Nobel Prizes.
2:21
Ejaaz: Number two, they're the only real competitor that NVIDIA has.
2:25
Ejaaz: They've created TPUs, which is their version of GPUs built to make their own
2:30
Ejaaz: custom AI models specifically for Google's software stack and hardware stack.
2:35
Ejaaz: They also have some of the craziest distribution of users. They have the number
2:40
Ejaaz: one mailing app in Gmail.
2:42
Ejaaz: They have the number one entertainment app with YouTube. They dominate search
2:46
Ejaaz: engines and advertising.
2:48
Ejaaz: And they also have the number one mobile operating system with Android.
2:51
Ejaaz: And number four, a little lesser known fact, is they're some of the biggest
2:55
Ejaaz: and best investors in the world.
2:57
Ejaaz: They currently own 14% of competitor Anthropic and 6% of SpaceX.
3:03
Ejaaz: So no matter how way you want to look at it, it's hard to argue why Google isn't
3:08
Ejaaz: going to become the most valuable company in the world.
3:10
Ejaaz: They have all these strengths, they have the best models, they have the best
3:13
Ejaaz: data to train these models, and they have all the compute to build this in-house.
3:17
Ejaaz: So I'm struggling to find an argument to see why Google isn't going to be the
3:20
Ejaaz: most valuable company within a decade.
3:22
Josh: I like looking at history. Google is very much a large player in this Game of
3:26
Josh: Thrones that we talk about in the search for AGI.
3:28
Josh: And it's helpful to have a little bit of context and pretext to how we got here
3:31
Josh: today, where you're saying $10 trillion is a reasonable market cap.
3:34
Josh: It's a little outrageous. But there's this funny story associated with the history of Google.
3:39
Josh: And it kind of starts in 2019, I believe the year is, where they released a
3:44
Josh: paper that was basically the inception of the Transformer.
3:47
Josh: And for those who aren't familiar, the Transformer is the piece of technology,
3:50
Josh: this little piece of code that has generated and created every single large
3:53
Josh: language model that exists today.
3:55
Josh: So by all means, Google kind of invented the technology that is running everybody's AI today.
4:00
Josh: Naturally, as a result, you would expect them to be the front runner.
4:02
Josh: But what they did is they kind of sat on this technology for a very long time.
4:06
Josh: So in 2022, when ChatGPT came out, Google actually didn't really have a publicly facing AI product.
4:12
Josh: They just had the technology because they were very much a research lab.
4:15
Josh: So while OpenAI acquired a million users in the first week, Google is just kind
4:19
Josh: of sitting there on, at this time, three to four year old technology that they
4:23
Josh: just haven't actually implemented in the product.
4:25
Josh: So what they did is they rushed to implement this product. and they created a lot of
4:30
Josh: AI systems that started with Bard and then recently is what we know today as
4:34
Josh: Gemini that just weren't really quite good.
4:37
Josh: And you get the idea that the reason they weren't quite good is because the culture was pretty bad.
4:42
Josh: In Google, there was a lot of problems with the workforce and of course a lot
4:47
Josh: of disconnect where if you asked Bard at the time to generate the founding fathers,
4:51
Josh: it would generate a series of minority women, which was just objectively incorrect and wrong.
4:55
Josh: And a lot of people took that as, okay, Google actually doesn't have a chance at succeeding in AI.
5:01
Josh: And the reality is that wasn't true because that changed when Sergey Brin comes into the picture.
5:06
Josh: So we have a post here, Sergey Brin spotted IRL again, and apparently he's working
5:10
Josh: on Gemini at Google. And this is true.
5:12
Josh: Sergey Brin, for those who don't know, co-founder of Google.
5:14
Josh: He was the guy who started from the beginning and he recognized a wave that
5:18
Josh: was too important to miss.
5:19
Josh: He came back to Google and he started implementing what they did at early stage Google today.
5:23
Josh: And now we have Gemini, which is the most powerful AI model in the world,
5:28
Josh: they're at least very much at the frontier with everybody else and they're implementing
5:30
Josh: a lot of new services they incepted this amazing technology lost the lead and
5:35
Josh: now are each as you're telling me they're probably going to get back into the
5:38
Josh: lead because that would be the implication with 10 trillion dollar market cap
5:40
Ejaaz: Yep and i think there are four key reasons why uh they hold such a a powerful
5:46
Ejaaz: moat and why they're super undervalued i want to start off with,
5:49
Ejaaz: Talking about their model, and it's not just like an LLM, it is everything else, right?
5:55
Ejaaz: They've tackled and are leading every other medium in terms of AI-generated
5:59
Ejaaz: content on the video side with VO, on the image side with Nano Banana,
6:03
Ejaaz: and on the scientific discovery side with the Alpha Gemini series.
6:07
Ejaaz: Just taking a look at this benchmark setup that I have here,
6:10
Ejaaz: this is something that we've started to see with every Gemini model release,
6:13
Ejaaz: which is they're frequently and consistently at the top, Josh.
6:17
Ejaaz: They're the number one LLM, they're the number one coding assistant,
6:20
Ejaaz: and they're the number one agent provider as well.
6:23
Ejaaz: And I think that this isn't by coincidence. They've worked very hard to kind
6:27
Ejaaz: of like restructure Google from this corporate kind of bloat,
6:32
Ejaaz: which they typically had up until AI became a running thing,
6:36
Ejaaz: into this like frontier AI tech lab that is constantly innovating,
6:39
Ejaaz: changing, and adapting their strategies, given whatever the environment they're faced with.
6:43
Ejaaz: So they consistently have the best AI models, but it's also worth explaining
6:48
Ejaaz: how they've translated this into user dominance.
6:52
Ejaaz: So typically how OpenAI and ChatGPT has done this is they've created a model
6:56
Ejaaz: and then they've pioneered basically the chat interface, right?
6:59
Ejaaz: They then did the same for text to video into Sora. So they've done a really
7:04
Ejaaz: good job of surfacing this to new users.
7:07
Ejaaz: Now, Google already has these users and they've done a great job of doing the same thing.
7:11
Ejaaz: They've integrated AI into their search. So whenever you search anything on
7:14
Ejaaz: Google now, you have something called an AI overview, Josh.
7:18
Ejaaz: And something that I learned just this morning, which they released from their
7:22
Ejaaz: quarterly report last week, is the monetization rate of this AI search,
7:27
Ejaaz: which comes up at the top of their.
7:30
Ejaaz: Infamous Google search page is monetizing at the same rate as their search links
7:36
Ejaaz: themselves, which is just a crazy undertaking, right?
7:39
Ejaaz: Because you would think that Google is killing their own monopoly in search
7:43
Ejaaz: by doing something like this, but it turns out that it's actually aiding and
7:46
Ejaaz: probably going to offer them more profits going forwards.
7:50
Ejaaz: The other thing is they have this whole AI productivity suite,
7:53
Ejaaz: which they surface all these different models and features.
7:55
Ejaaz: So I guess the point that I'm trying to make is Google isn't just a model creator,
8:00
Ejaaz: are a product creator they understand their audience both
8:03
Ejaaz: from the enterprise side and the consumer side and i
8:05
Ejaaz: think it's highly undervalued and very misunderstood
8:08
Ejaaz: that at how good google is at doing that job but what's probably surprising
8:14
Ejaaz: to most is one of their products comes in the form of hardware uh their equivalent
8:19
Ejaaz: of the gpu called the tpu which has added unlikely the most value to Google's market cap?
8:27
Josh: Yeah, TPUs are amazing. And I'm going to do my best to try to explain TPU versus
8:30
Josh: GPUs because on the surface, it seems a little confusing, but I think we can simplify it quite a bit.
8:35
Josh: Ijus, I want you to imagine a GPU being a chef, a chef who is a master chef,
8:40
Josh: who can cook anything and can make anything that you imagine.
8:42
Josh: But the reality is that you and myself and the rest of the world,
8:46
Josh: we only really want sandwiches.
8:47
Josh: So while a chef can make a sandwich, it will take a little bit longer to make a sandwich.
8:51
Josh: That is what a GPU does. It can cook you anything you like, But the reality
8:54
Josh: is most of the world wants sandwiches.
8:56
Josh: A TPU, you can imagine, instead of being a general purpose chef,
8:59
Josh: is a production line for sandwiches.
9:01
Josh: It is a singular line that has all of the ingredients on top of it to hyper-efficiently
9:05
Josh: make sandwiches for the whole world.
9:07
Josh: And because the world doesn't want salmon, they don't want steak,
9:10
Josh: they just want sandwiches, this production line is much more efficient at making sandwiches.
9:14
Josh: So while the GPU can do everything, and a lot of people want a GPU,
9:17
Josh: people who are training hardcore AI, they just want a TPU.
9:21
Josh: It's called a tensor processing unit, and it is this hyper-focused piece of
9:25
Josh: hardware built to perform this thing called matrix math, which a lot of AI hardware is built upon.
9:30
Josh: So what is so effective about these TPUs? Well, there's two ways of measuring
9:34
Josh: GPU, CPU, compute in general.
9:36
Josh: It's performance per watt, and it is cost per token.
9:39
Josh: So performance per watt is two times that of the NVIDIA A100s,
9:44
Josh: which is one of their leading flagships of chips.
9:46
Josh: That means that for every watt of energy you apply, you get double the amount of performance back.
9:51
Josh: The other one is cost per token. So for every dollar you spend,
9:56
Josh: this is how many tokens you can yield.
9:58
Josh: And it's about one and a half to two times better performance per token than
10:01
Josh: NVIDIA GPUs. So these TPUs are remarkable.
10:04
Josh: They work really, really well. And the question I asked myself when I was going
10:08
Josh: through this is, well, why does the whole world not use TPUs?
10:11
Josh: Well, the first answer is they actually don't sell them. Google just owns the
10:15
Josh: TPU. It is a Google invention.
10:17
Josh: They own them, they use them for their own stack, and they vertically integrate
10:20
Josh: it through the software. so it's hyper-performance.
10:22
Josh: And it's kind of like what we see with Apple chips with the M-Series.
10:24
Josh: I always reference the M-Series because it's amazing, is that they've built
10:27
Josh: this chip hyper-optimized for their exact production workflow.
10:29
Josh: And as a result, the cost efficiencies, performance efficiencies,
10:33
Josh: every proficiency is through the roof.
10:35
Josh: So that's kind of how I would describe the TPU to a layman. That's kind of how
10:38
Josh: I learned it myself. And hopefully that description makes sense.
10:41
Ejaaz: That makes a lot of sense. Although I have one slight pushback for you, Josh,
10:45
Ejaaz: which is as of last week, they have
10:48
Ejaaz: started to sell their tpus to a
10:52
Ejaaz: little known ai company uh known as anthropic um
10:55
Ejaaz: supposedly the deal is marked at 50 billion dollars
10:58
Ejaaz: which doubles their compute offering uh
11:02
Ejaaz: from revenue earnings on the year uh so if this deal actually goes through this
11:06
Ejaaz: will be the first major gpu sale that has sat outside of nvidia's remit so i
11:13
Ejaaz: already know jensen's fuming uh at the head but we will see whether Google takes this seriously.
11:19
Ejaaz: I mean, to your point, I don't know if Google has the...
11:23
Ejaaz: Manufacturing capability or even the ambition to scale TPUs in the way that
11:27
Ejaaz: NVIDIA is done with GPUs.
11:29
Ejaaz: I see kind of two major constraints. Number one, Google's just focused on so
11:33
Ejaaz: many other things and NVIDIA is like hyper-focused on doing this one thing really well.
11:37
Ejaaz: And number two, TPUs, as you said, are highly specific and custom.
11:41
Ejaaz: So I'm guessing that the TPUs that they're selling to Anthropic in this deal are very specific.
11:47
Ejaaz: Maybe that's a niche that they can kind of take forward, but I don't think it
11:50
Ejaaz: could grow as large as NVIDIA.
11:52
Ejaaz: Do you think I'm wrong or do you think they're knocking trillions of dollars
11:55
Ejaaz: of market cap off of NVIDIA soon?
11:57
Josh: Yeah, well, there's two cases. There's one in which you believe TPUs are the next form of GPU.
12:01
Josh: It's like a natural extension where everyone's going to want to buy these.
12:04
Josh: In that case, if they could do these production at scale, well,
12:07
Josh: they will, yeah, they can knock off a trillion or two off of NVIDIA's market cap, sure.
12:10
Josh: The reality is, is that I don't believe they are direct Apple to Apple's comparison.
12:15
Josh: There's a lot of different types of training that NVIDIA GPUs are good for. the per
12:18
Josh: per watt of gpus from nvidia are still higher nvidia
12:21
Josh: is still innovating faster they have access to the most cutting edge lithography which
12:25
Josh: happens only in a few places in taiwan they really
12:28
Josh: have this monopoly on the supply chain that google just can't really compete
12:31
Josh: with but google can supplement a lot more compute so to the point of jevin's
12:36
Josh: paradox where compute will just expand to the emptiness that there is around
12:41
Josh: it um there's no supply demand shortage for these processing units,
12:45
Josh: whether they be tensor or graphical.
12:47
Josh: And if Google can start selling them, that just opens up another pillar for Google.
12:51
Josh: I'm not sure it necessarily hurts NVIDIA, but it allows Google to just make
12:55
Josh: more money and print more cash.
12:57
Josh: And I think that's a big win for a company that really hasn't made money off
13:01
Josh: of the infrastructure play yet, but now has a very clear opportunity to do so.
13:05
Ejaaz: Yeah, I mean, I'm just looking at this tweet here. Morgan Stanley kind of like
13:09
Ejaaz: up their price and prediction for Google stock in 2026.
13:15
Ejaaz: But one thing that really caught my eye is the $158 billion backlog that they
13:21
Ejaaz: currently have for their cloud offering.
13:24
Ejaaz: And it got me thinking that like, Google has always been a powerhouse when it
13:28
Ejaaz: has come to like infrastructure provision and they've done so really well with
13:32
Ejaaz: GCP, their cloud product.
13:34
Ejaaz: You could also argue the same of Microsoft, Azure.
13:37
Ejaaz: Both of these companies have signed major deals, Microsoft and Google,
13:41
Ejaaz: in the last two weeks for AI-specific stuff, not just training,
13:45
Ejaaz: but also inference costs.
13:46
Ejaaz: So I see this like growing trend, Josh, of like infrastructure,
13:50
Ejaaz: whether it's chips or just kind of like cloud services, getting really in demand
13:54
Ejaaz: as we kind of like scale these AI models up.
13:57
Ejaaz: So I don't know, I'm super excited to see where this goes. The final thing is
14:01
Ejaaz: Google is just everywhere.
14:04
Ejaaz: They are the doorstep to the internet and actually the entire house.
14:08
Ejaaz: You know, they run Gemini, they're models, they have the TPU chips,
14:12
Ejaaz: which we just mentioned, but they also handle 90% of search.
14:16
Ejaaz: They run YouTube, the number one entertainment in the world.
14:18
Ejaaz: They have Google Maps, they have Android, they power all Android devices.
14:22
Ejaaz: It is just a very gluttonous monopoly that Google has that extends way beyond
14:27
Ejaaz: just a simple search engine. And the point I wanna make around here is that
14:31
Ejaaz: is a crazy positive feedback loop to when you're creating AI models.
14:36
Ejaaz: They have all the data, they have all the compute in-house, so they don't have
14:40
Ejaaz: to rely on that tiny island in Taiwan and on Nvidia's dominance here.
14:44
Ejaaz: And then they have all the apps to surface that through a very monetizable audience.
14:48
Ejaaz: We're talking about billions of users here.
14:50
Ejaaz: So whereas OpenAI has to kind of build their audience from scratch and they've
14:53
Ejaaz: done so very impressively to 800 million weekly active users,
14:57
Ejaaz: Google kind of already had that waiting and ready to go. And they've proven
15:00
Ejaaz: that, right? In their quarterly earnings, they have 650 million weekly active users.
15:04
Ejaaz: I'm guessing the next quarter, that's going to, you know, increase by at least a third.
15:08
Ejaaz: So the point is, Google's dominance extends way beyond a search engine.
15:12
Ejaaz: I don't think people are very aware of that. And I think that is one of the
15:15
Ejaaz: biggest bull cases for their stock going forwards.
15:18
Ejaaz: A counter argument that I've heard to this, Josh, is that they just simply won't execute as well.
15:24
Ejaaz: I would agree with you, except that the data tells us otherwise.
15:27
Ejaaz: If you look at this chart over here, the retention rate, the three-month retention
15:30
Ejaaz: rate, specifically for Google Gemini AI models, has been up and to the right.
15:35
Ejaaz: It is pretty insane. We're talking about 90% the three-month retention rate
15:40
Ejaaz: and six-month retention rate of 85%. That is staggering for any kind of consumer internet product.
15:45
Josh: So you just you've laid out a pretty bullish case
15:48
Josh: for google and i'm not sure that mismatches the public perception as
15:51
Josh: of late i think that's changed a lot people really hated google but
15:54
Josh: they're starting to come around see the light it's trading just beneath all-time highs
15:57
Josh: and it very vividly reminds me of another company of about the same size a little
16:01
Josh: bit bigger that has it's sitting at all-time highs but there is a very like
16:06
Josh: gross disconnect between public sentiment and the company and that's apple um
16:10
Josh: there's this post on the screen here that says what the hell is apple doing.
16:13
Josh: They failed to make a car. They have no AI investments.
16:15
Josh: Siri still sucks. Just releasing the same phone over and over again. How can you miss AI?
16:20
Josh: How is that even possible? And Sean, to your point, I agree.
16:24
Josh: They've actually, they've swung and missed on just about everything they've
16:27
Josh: tried recently. And it's been a big disappointment, but the stock is trading at all time highs.
16:32
Josh: So where is this disconnect coming from? How can one group of the internet be
16:36
Josh: so polarized against the other group?
16:39
Josh: And where all the money is going is clearly into Apple because Apple is trading
16:42
Josh: like 4 point something trillion dollar market caps. It's a gigantic company.
16:46
Josh: There's a few ways to think about this. And one that I really like is around local inference.
16:52
Josh: So the way AI works, and granted, this is kind of funny because
16:56
Josh: I think Apple accidentally stumbled upon this conclusion, but I'm going to purvey
17:00
Josh: it as if this was all by design.
17:03
Josh: There's two kind of ways that companies handle compute. There's cloud-based
17:06
Josh: compute, and then there's edge inference that happens.
17:09
Josh: So one happens in a data center in a remote place. That's what we see all the
17:13
Josh: pictures of, these gigantic factories that have a bunch of GPUs.
17:16
Josh: And the other happens locally on your device, whether it be your smartphone
17:19
Josh: or your laptop or your desktop, whatever device it may be,
17:22
Josh: compute happens locally on that device compute on a local device
17:25
Josh: is free compute in a cloud costs money so what
17:29
Josh: is apple doing well apple just released a new mac
17:32
Josh: mini um which we have a post about here the m3 mac ultra studio or i guess that's
17:37
Josh: what it's called is the only device which you can run open source state-of-the-art
17:40
Josh: models outside of a data center and that seems strange because there's a lot
17:44
Josh: of really powerful gpus there's a lot of really powerful computers but the only
17:48
Josh: ones that actually allow you to run these are these Macs.
17:51
Josh: Why is that? Well, it's because Apple owns the chips, and they've optimized these chips for AI.
17:56
Josh: So even though there is an absence of AI currently running on Apple devices,
18:00
Josh: they are fully compute capable of running these very impressive models from
18:04
Josh: anything on a Mac Studio down to your iPhone,
18:06
Josh: which leads us to the bull case of Apple being they are not subject to a lot
18:12
Josh: of the swings that we see in public markets, because they're not investing all of the CapEx.
18:15
Josh: Now, EJS, if you'll remember, there was a deal struck between Google and Apple in the past.
18:20
Josh: This is not the first time they've worked together. And that was for Google search.
18:23
Josh: Back in the day, I think we have a post somewhere about this.
18:26
Josh: Yeah, here's a post from EJS. You dug this up from 2018, I think.
18:30
Josh: How much is your data worth? So much that Google just paid Apple $9 billion
18:33
Josh: to be the default search engine in the iPhone. $9 billion to get people...
18:38
Josh: To use a free search. Well, that number has actually jumped to 20 billion as
18:42
Josh: of as late as 2022 was the most confirmed number.
18:45
Josh: And it's just an outrageous amount of money to spend. But I don't think this
18:48
Josh: is the last time they're going to work with each other.
18:49
Josh: So Ejas, this week we got some news that there is a new deal on the table.
18:53
Josh: And this isn't a search related deal.
18:55
Josh: This is instead an AI related deal.
18:58
Ejaaz: Yeah, this is like Google and Apple deal 2.0. And it's so much bigger.
19:03
Ejaaz: And it's back better than ever, right? So this week, we had news break that
19:09
Ejaaz: Apple has asked Google to create their own Gemini model just for Apple users
19:14
Ejaaz: that will run on their private cloud.
19:17
Ejaaz: Josh, can you break this down for me? What's going on here?
19:19
Josh: This is amazingly important. So everybody and their mother is spending trillions
19:24
Josh: of dollars of capital building AI data centers.
19:27
Josh: OpenAI is spending trillions, Google, Microsoft, name anybody they're spending
19:30
Josh: trillions of dollars. There's a question that we frequently ask ourselves on
19:33
Josh: the show and public markets are asking, is there a bubble? When is this bubble going to burst?
19:38
Josh: How much CapEx is appropriate before you just can't justify the returns on your investment?
19:43
Josh: Apple, in a way, in a funny messed up roundabout way, is completely immune to
19:48
Josh: these swings, to this capital expenditure, and to this bubble exposure because
19:52
Josh: they have not invested much money into building out the resources needed to
19:55
Josh: train their own supermodels.
19:57
Josh: What they're doing now is a very clear and obvious answer. is they're actually
20:01
Josh: offloading that responsibility, offloading the financial risk to Google.
20:04
Josh: And they're going to pay them X amount of dollars in order for Google Gemini
20:08
Josh: to create a custom model for the Apple ecosystem.
20:10
Josh: And I think this is a really powerful thing because we mentioned a little bit
20:14
Josh: earlier, there's cloud and then there's local compute.
20:16
Josh: And the local compute is actually sufficient enough to create a custom model.
20:21
Josh: Don't suffice for a lot of requests that people have. I think a lot of prompts,
20:24
Josh: and we talked about this a lot where with cutting edge models,
20:27
Josh: I'm not even sure how to really test them because just my requests,
20:30
Josh: my needs from an AI model aren't cutting edge.
20:32
Josh: They don't need massive amounts of compute or tokens or resources to solve my problems.
20:36
Josh: A lot of the times I'm just like, I need help navigating my day.
20:39
Josh: I have a lot going on. I need to know like what, what times am I able to do things?
20:43
Josh: And the thing with Apple is it actually has all this intelligence.
20:46
Josh: And this was the promise with apple intelligence we just never got um but by
20:50
Josh: all floating into gemini we start to see these unlocks where apple's the only
20:54
Josh: one that has more context than open ai and it does we think about memory a lot
20:58
Josh: and context and how powerful it is for a system and what device what system
21:02
Josh: have you been using longer than chat gpt that has more info about you what's your smartphone
21:06
Josh: and a lot of people will be reluctant to give up that data but in the case that
21:10
Josh: it is private and it runs locally and it's able to take all the context from
21:14
Josh: your device that creates this really powerful edge compute.
21:16
Josh: And that's kind of part one of the bull case for Apple. So I'll stop there to
21:20
Josh: see if you disagree, agree. This is like, we're getting into the weeds here a little bit.
21:24
Ejaaz: I mean, as you know, I've been one of the biggest bears against Apple for almost a year now.
21:29
Josh: And rightfully so.
21:31
Ejaaz: Yeah, yeah. I think they've done a terrible job. But as you pointed out, this works both ways.
21:36
Ejaaz: They've effectively shielded themselves from the crazy fluctuations that you
21:41
Ejaaz: can see in AI, specifically in CapEx, right? So they're not investing trillions of dollars.
21:45
Ejaaz: But also when that rollercoaster ride starts going down, they're shielded,
21:49
Ejaaz: they're affected from it and they can pick and choose the winners.
21:51
Ejaaz: There's also the argument that like all this AI CapEx investment is kind of
21:54
Ejaaz: a race to the bottom because whoever gets to AGI first is gonna absolutely disrupt
21:59
Ejaaz: and destroy any other competitor.
22:01
Ejaaz: An argument that you could potentially give. The other side of it is,
22:05
Ejaaz: Josh, I really like your point around the personalization and localization and
22:09
Ejaaz: the importance of privacy of having your model on your own device.
22:13
Ejaaz: Who cares if there's a general query that can be answered by some research professor versus an AI model?
22:19
Ejaaz: I want it to be able to read my text and understand the next thing I'm going to text.
22:23
Ejaaz: I want it to be able to download the apps ahead of me even knowing about the
22:26
Ejaaz: apps and do the things for me. That's only going to work on personalized devices.
22:30
Ejaaz: And as you said, Apple has the distribution.
22:33
Josh: Yeah, the use cases for local inference are kind of remarkable when you think
22:36
Josh: about having access to all of your texts or emails.
22:39
Josh: There's a second thing to this also, which is cost.
22:42
Josh: If you remember in a previous episode, we covered Grok Nano,
22:45
Josh: which was this very lightweight, very easy to use, very low cost model,
22:50
Josh: and how within days of it being released, it went to the very top of all the
22:54
Josh: charts in terms of usage.
22:55
Josh: Every developer in the world wanted to use it because it was fast and it was cheap.
22:59
Josh: And one of the trends that we see as AI develops over time is this race to the bottom.
23:04
Josh: The cost per token, the race to zero is fairly aggressive.
23:07
Josh: And what Apple's done is they've kind of cheated and they've gone from the starting
23:11
Josh: line directly to the finish line without doing the work in between because inference
23:15
Josh: on a local device that has an M-series chip or an A-series chip that Apple has is completely free.
23:20
Josh: It costs $0 to run a query on these local devices.
23:24
Josh: And there's billions of them that are capable of doing this.
23:26
Josh: So if you're a developer who wants to build a great experience for a customer,
23:30
Josh: there is absolutely no reason why you shouldn't be building for Apple devices
23:33
Josh: because the inference costs are free.
23:36
Josh: And a lot of these developers who are building applications for the world of
23:38
Josh: AI, they're bringing these servers. They're constantly looking for the next
23:41
Josh: cheapest one because they want to keep the cost down.
23:44
Josh: But if you just throw an app in the App Store that runs on these local models
23:47
Josh: that Apple will hopefully produce in partnership with Google,
23:50
Josh: You suddenly tap into this gigantic context window, this gigantic bay of memory,
23:54
Josh: and it costs you absolutely zero dollars to do.
23:57
Josh: And I think market forces will kind of come into play at some point here where
24:01
Josh: just the natural tendency to trend towards lower prices will allow a lot more
24:05
Josh: developer adoption and to create the experiences on top.
24:08
Josh: So while Apple completely and utterly failed at AI version one with Siri,
24:12
Josh: it is an abomination. It is the worst AI product of any major company by far.
24:16
Josh: And I don't want to get that twisted. they may have accidentally
24:20
Josh: just by the fact of vertically integrating these chips stumbled into the best
24:25
Josh: case scenario where everybody's spending a bunch of money everyone is trying
24:29
Josh: to build the ai first get the user second apple has all the users and they have
24:34
Josh: all the data they just need the ai to plug into it and google could be that person to do so yeah
24:39
Ejaaz: It's super smart i think the market is finally recognizing that if i were to
24:42
Ejaaz: boil all of this down to its core i would say that Apple is actually doing what
24:47
Ejaaz: they've always done the best,
24:50
Ejaaz: which is create the best consumer experience and products.
24:54
Ejaaz: And so rather than jump into the infrastructure wars and the infrastructure
24:57
Ejaaz: race in AI with GPUs, they let everyone else do it.
25:01
Ejaaz: They cherry pick the best, and then they integrate it in the best,
25:05
Ejaaz: most artful way for their own products and services.
25:08
Ejaaz: And that's why they have the addicted audience that they have, right?
25:13
Ejaaz: I buy iPhones practically every single well, you're having MacBooks at this point.
25:17
Ejaaz: I'm addicted to the Apple brand. And there's a reason behind that because it
25:20
Ejaaz: has the best all-in consumer experience.
25:23
Ejaaz: And that's what Apple knows that they have. And they can afford to basically
25:26
Ejaaz: sign these deals and partnerships with the Googles of the world.
25:30
Ejaaz: Another thing that I find interesting about this, Josh, is in this case,
25:34
Ejaaz: they're paying Google to create their own AI model for them,
25:37
Ejaaz: which seems like an L on the balance sheet for Apple.
25:41
Ejaaz: But if you play this out, Gemini and Google are definitely going to build their
25:46
Ejaaz: own agent, right, which is going to use a bunch of apps and they need to get
25:51
Ejaaz: access to billions of consumers. Who has that?
25:55
Ejaaz: Apple. I know Google already has it across an array of their different products
25:59
Ejaaz: and apps that we explained earlier on.
26:01
Ejaaz: But Apple has that addictive user experience that only operates at the hardware
26:06
Ejaaz: level through the cellular device.
26:07
Ejaaz: And if they maintain that lead, that could be a case for Google actually paying
26:12
Ejaaz: Apple a hell of a lot more money to get access to this.
26:15
Ejaaz: Is that fair? Is that crazy? Or have I got this wrong?
26:18
Josh: Yeah, at the edge, it makes sense that the search thing happens
26:21
Josh: again where okay apple owns the user experience
26:24
Josh: google owns the software stack google winds up paying
26:27
Josh: apple for the exposure um like i said before
26:30
Josh: a lot of these companies they they have the intelligence they don't have the
26:34
Josh: products they don't have the interface they don't have the trust or the users
26:36
Josh: apple has that and by licensing technology from gemini they exclude themselves
26:42
Josh: from all the capex fluctuations and the crazy amount of spending without a promised
26:45
Josh: return in exchange for creating a a
26:49
Josh: AI experience that is frankly the only one that I really want.
26:52
Josh: The one that has all of my context. It can read all of my texts, all of my emails.
26:56
Josh: It could be the personal assistant that no one else can be yet.
26:59
Josh: And that's remarkably powerful.
27:01
Josh: And if I want to outsource my thinking to an impressive AI, I could do that.
27:05
Josh: And sure, Apple could probably ping some sort of API through Google or whoever
27:08
Josh: they're partnered with, like OpenAI.
27:10
Josh: But for most of my tasks, most of my AI needs, I just want a really helpful assistant.
27:15
Josh: And no one can provide that better than an AI on my iPhone.
27:18
Josh: And I think that's kind of the bull case in summary is as AI is able to remove
27:22
Josh: themselves from CapEx, as they're able to implement local inference on all these
27:26
Josh: devices for zero dollars, there's a lot of network effects that will probably
27:30
Josh: come swinging their way.
27:31
Josh: And maybe it was accidental, maybe it was by design, but the long tail effects
27:35
Josh: of Apple's position right now seem fairly optimistic.
27:37
Josh: And I think that's probably why it's priced sitting right at an all-time high
27:40
Josh: right now, because we're not the only ones that think that.
27:42
Josh: And that just about wraps it up.
27:44
Josh: Why we think Google and Apple are both undervalued while at all-time high.
27:47
Josh: And while perception might not always match public market sentiment and i think
27:51
Josh: it's just it's important to continue to evaluate these companies like we said
27:53
Josh: on yesterday's episode um these things matter a lot and how ai is implemented
27:57
Josh: really matters a lot and it's changing
27:59
Josh: Architecture of the world around us. So it's this exciting conversation we're
28:02
Josh: going to continue having as we go.
28:04
Josh: I just, as always, thank you so much for watching the episode.
28:07
Josh: We really appreciate all the support.
28:08
Josh: Things have been going well. In fact, so well that 85% of the people who watch
28:12
Josh: this episode on YouTube are not subscribed, which is a problem.
28:16
Josh: So if you are watching this and you are not subscribed, please go ahead,
28:19
Josh: click that subscribe button and also listen to us wherever you find your podcast.
28:23
Josh: One place we're struggling to grow is on the RSS feed on Spotify because it's
28:27
Josh: kind of tough to get people to go there so if you listen and you want to support
28:30
Josh: the show please go there subscribe on spotify subscribe on your rss feed wherever
28:34
Josh: your player may be apple podcast even if
28:36
Ejaaz: You don't want to listen if you're taking a shower just put it on play put it
28:40
Ejaaz: in the other room it helps us out a lot.
28:43
Josh: That's what my dad does it's great so yeah we just appreciate the support of
28:46
Josh: whatever you can give all the comments it's been amazing we're coming off our
28:49
Josh: best month ever and we continue to keep our foot on the gas thanks to all the
28:52
Josh: support so thank you for watching as always we will see you in the next episode and peace