3 Stocks Shaking in Their Boots About Apple’s Bold AI Plans

Stock Market

Apple (NASDAQ:AAPL) plans to incorporate many artificial intelligence features into some of its products this fall. Specifically, the tech giant will provide AI-powered “writing assistance, image creation and editing” assistance, along with increased capabilities for Siri.  The updates will be limited to the “iPhone 15 Pro and 15 Pro Max, as well as iPads and Macs with M1 or newer chips. ”

I don’t expect the moves to trigger a huge hardware upgrade that will tremendously lift Apple’s top and bottom lines. But on the other hand, a significant number of consumers are going to start using Apple’s AI offerings and become used to doing so. Over the longer term, that phenomenon is likely going to have a meaningful, negative impact on companies that supply Apple’s competitors and on other major players in the PC sector.

To the extent that consumers eventually become used to accessing AI from their iPhones, even some players in the data center space could take a sizeable hit. Moreover, if consumers like Apple Intelligence, the market share of Apple hardware could increase meaningfully. Here are three stocks worried about Apple’s AI plans.

Qualcomm (QCOM)

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Qualcomm (NASDAQ:QCOM) gets “most” of its revenue from Android devices and benefited last quarter from strong sales of AI-capable Android devices. To the extent that Apple’s AI offerings attract Android users to switch to iPhones, Qualcomm stock is likely to take a significant hit going forward. As a result, I view it as one of the stocks worried about Apple’s AI plans.

Moreover, Qualcomm is also trying to sell AI chips for PCs. As more consumers become accustomed to utilizing Apple’s Macs for their AI needs, the sales of AI PCs powered by Qualcomm could sink. That’s especially true because Qualcomm-powered AI PCs have gotten off to a rather negative start. Specifically, Samsung’s new Qualcomm-powered laptop recently had trouble running some popular software, such as the Fortnite video game. One reviewer claimed that older software, such as printers acquired during the Covid era and VPN, “will break” on Qualcomm-powered PCs.

And in the shorter term, QCOM stock could also be hurt by a rotation out of the semicondictor space that’s currently under way. According to investment bank Argus, many large investors are moving out of chip makers and into sectors that have struggled during the current bull market.

Alphabet (GOOG,GOOGL)

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Alphabet (NASDAQ:GOOG, GOOGL), of course, generates the majority of its revenue from being the world’s dominant internet search engine.

In the fourth quarter of 2023, for example, $48 billion of Alphabet’s $86 billion of revenue was generated from the Google search engine.

Meanwhile, the iPhone has a total user base of 1.46 billion, and many if not most of the world’s wealthiest consumers use iPhones. If even 10% of Apple’s user base gets accustomed to utilizing Apple’s partner, ChatGPT, to obtain information instead of the Google search engine or Alphabet’s AI engine, Alphabet’s top and bottom lines will likely take significant hits.

The extent to which Alphabet needs Apple users to rely on Google’s search engine is shown by the fact that Alphabet paid Apple $20 billion in 2022 in exchange for Apple making Google the default search engine on iPhones.

Eventually, Apple may incorporate Alphabet’s AI model, Gemini, into Apple Intelligence. But until that happens, GOOG stock will be at risk of taking a nasty hit if Google search volume declines sharply on iPhones.

Advanced Micro Devices (AMD)

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If the popularity of Mac PCs and laptops significantly increases as a result of Apple’s launch of Apple Intelligence, the growth of Advanced Micro Devices’ (NASDAQ:AMD) top and bottom lines is likely to slow. That’s because AMD sells chips used in many PCs and laptops but does not provide chips for Apple’s Mac offerings.

Moreover, if consumers become accustomed to using their iPhones to conduct many of their AI-powered activities, AMD’s revenue from selling AI chips to data centers could come in meaningfully below analysts’ average expectations. That’s because iPhones will use their own internal chips to utilize AI, rather than rely on data centers to do so.

And in related news, Morgan Stanley on June 10 downgraded its rating on AMD stock to “equal weight” from “overweight.” The bank believes that expectations for AMD’s AI chips are “too high.” However, the bank kept a $176 price target on the shares.

On the date of publication, Larry Ramer did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Larry Ramer has conducted research and written articles on U.S. stocks for 15 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Larry began writing columns for InvestorPlace in 2015. Among his highly successful, contrarian picks have been SMCI, INTC, and MGM. You can reach him on Stocktwits at @larryramer.

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