BofA expects Apple ‘to be a net beneficiary of AI at the edge’

ChatGPT maker OpenAI held its “Spring Update” event on Monday, where it announced a new desktop app, a web UI refresh, and the launch of its most advanced model, GPT-4o.

The demo showcased how edge devices, starting with Macs and iPhones, can benefit from AI. By integrating voice, text, and images, the demo also highlighted AI’s potential to significantly boost productivity.

Much of the demo utilized a “hardwired” Apple’s (AAPL) iPhone to reduce latency in real-time interactions.

In this context, analysts at Bank of America reiterated a Buy rating on AAPL, saying they expect the tech giant “to be a net beneficiary of AI at the edge” with “gross margin upside and momentum in Services.”

OpenAI CEO Sam Altman also said in a blog, that his company has created “the best model in the world available for free in ChatGPT, without ads or anything like that.”

“This could mean OpenAI will monetize using other means and might not create a model similar to Apple (NASDAQ:)’s licensing relationship with Google (although such an arrangement cannot be entirely ruled out),” analysts at Bank of America wrote.

Moreover, they highlight that OpenAI’s GPT-4 model supports up to 1 trillion parameters compared to GPT-3’s 175 billion.

On-device models can handle 7-10 billion parameters, however, the cloud offers the richest AI experience, analysts at Bank of America emphasized. Still, monetization for AI platforms like OpenAI might include ads, subscriptions, or an app store model tapping into developer revenues from AI-enabled apps.

At the moment, Apple’s Siri combines on-device processing with offloading to Apple servers.

Analysts at Bank of America also noted that the demo did not clarify the practical latency or whether the on-device processing power and connectivity speeds would suffice to support the use cases highlighted.

“In our opinion, Apple will increase the local processing ability on iPhone 16 potentially with higher RAM that can drive superior performance relative to prior models thereby creating a need for upgrades,” they said.