Over the past week, investors have been highly focused on the tech sector for multiple reasons.
Multiple members of the Magnificent 7 reported earnings this week, including Apple (AAPL) , Microsoft (MSFT) and Meta Platforms (META) . A clear takeaway from the earnings week so far is that companies are not scaling back their artificial intelligence (AI) spending, even after the recent selloff triggered by the release of Chinese startup Deek’s R1 AI model.
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On the contrary, Microsoft and Meta are poised to increase their AI spending this year. However, on its Q1 2025 earnings call, Apple took a different approach, not disclosing any specific figures for further AI investments in 2025, though CEO Tim Cook did highlight plans to continue AI integrations.
Apple’s history of spending less on AI has sparked some concern from experts. However, a recent development might help push it to the front of the market.
Apple CEO Tim Cook recently revealed that iPhone sales have been declining. However, the company may be about to benefit from the work of an unexpected company.
Justin Sullivan/Getty Images
AI market conditions may be about to shift in Apple’s favor
As noted, Apple has approached the AI arms race differently than its Magnificent 7 peers. While other companies doubled down on expensive AI chips from Nvidia (NVDA) , Apple focused on creating its own in-house chips, although it meant running the risk of being beaten to the fast-growing market.
While AAPL stock has mostly performed well throughout the past few years, as the AI frenzy has swept over markets, some experts have posed concerns about Apple’s AI strategy.
As Barchart reported earlier this month, “Analysts have raised questions about whether Apple’s heavily marketed “Apple Intelligence” features can drive demand for its latest devices.”
Related: Analysts overhaul Apple stock price targets after record Q1 earnings
The outlet highlighted that MoffettNathanson recently downgraded Apple, issuing a “Sell” rating, citing “weak consumer response to the AI-enabled iPhone 16.” This thesis is supported by the fact that Apple just reported a slight year-over-year (YOY) decline in iPhone sales, coming in below Wall Street estimates.
The integration of the Apple Intelligence platform into iPhones may not be enough to keep Apple competitive in the AI arms race. But it seems that an unlikely source may be about to help Apple keep pace with its AI rivals.
Apple also reported declining sales coming from China but according to some experts, it may be poised to benefit from a market trend sparked by a Chinese company. DeepSeek recently shocked the world with its R1 model, trained for just $5.6 billion and built on less advanced AI chips.
Experts agree that this development will force companies to find creative new ways to build out AI technologies if they want to compete with this one-year-old startup. This seems likely to put Apple in a unique position to emerge as an AI leader.
Per the Financial Times:
“DeepSeek’s model could point to a future in which sophisticated AI systems are small and efficient enough to run on smartphones, rather than requiring vast investments in cloud computing infrastructure.”
If that’s true, Apple would likely have a competition edge, as the market’s leading smartphone maker.
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Advanced mobile phones, such as the iPhone and Google Pixel (GOOGL) , are equipped with advanced processors that allow them to offer AI features. However, training an advanced LLM typically requires the type of computational power that computer systems designed for these purposes can most easily provide.
Now, DeepSeek’s model could be about to usher in a new era in which AI models are often run on smaller devices, such as smartphones and tablets.
Tim Cook has praised DeepSeek’s AI models
Thomas Husson, a Principal Analyst at Forrester, recently addressed the potential impact that DeepSeek could have on Apple, noting that “DeepSeek’s smaller model is more of a validation of Apple Intelligence since it will rely more heavily on a local on-device AI approach increasingly based on edge technology.”
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He isn’t the only expert who predicts that these shifting AI market tides could benefit Apple. A Morgan Stanley analyst issued a note on this topic recently, speculating that if DeepSeek’s local on-device approach does continue to spread, Apple will likely have a competitive edge.
“In a world where consumer LLMs become commoditised, distribution platforms become key assets, and Apple owns the most valuable consumer technology distribution platform that exists today,” the analyst states.
Cook seems impressed by DeepSeek’s technology. On the recent Apple earning call, he described it as an “innovation that drives efficiency. He added that he believes the company will continue to “leverage a hybrid model” when it comes to capital expenditures.
Now that DeepSeek appears poised to change the market, Cook likely sees even more reason to employ this muted approach to AI spending.
Related: Veteran fund manager issues dire S&P 500 warning for 2025
