These days, nothing is certain about the tech market or the world at large. Even NVIDIA’s seemingly bulletproof stock took a hammering on Monday, enduring a $589 billion market cap decline after China-based DeepSeek raised questions for investors about more efficient AI models.
But Apple’s stock has remained steady ahead of its first quarter earnings report, which is set for after Thursday’s closing bell. Though it took a slight hit as DeepSeek became the talk of the tech world, Apple’s shares almost immediately rebounded by 7%. That could owe to the perception that the company trails rivals like Google and Microsoft in AI investments. The company’s fortunes aren’t tied quite so closely to generative AI’s successes and failures.
Certainly, its new tentpole technologies have underperformed, especially Apple Intelligence, Apple’s own in-house generative AI offering, introduced last summer. The small model approach stands in marked contrast to plays from OpenAI and Google. Conventional wisdom in the space holds that bigger is better. As such, many of the best-known models are trained on every piece of information developers can get their hands on, regardless of whether or not it might have a direct impact on user queries.
However, the massive black box approach makes it difficult – or impossible – to determine why a particular dataset is prone to hallucinations, and it’s easy to have an insufficient model, owing to a too-small dataset. As the recent rollback of Apple Intelligence news summaries proves, simply taking a hyper-focused approach to model training isn’t a magic bullet.
In Apple’s case, iOS 18 provided inaccurate summaries of news app alerts. (The news industry is already in enough trouble, without an added layer of misinformation.) Apple did the right thing by pausing the feature to return to the drawing board. But day one issues can shake investor confidence when a feature is an essential piece of a company’s future strategy.
Those challenges come at a tricky time for Apple. Over the holidays, Apple saw an 18% iPhone sales drop in China, owing to growing competition from homegrown brands like Oppo, Vivo, Honor, and Xiaomi. After being sidelined by restrictions handed down from the first Trump administration, Huawei has seen its own massive rebound in China as development continues on its in-house HarmonyOS.
It doesn’t help that Apple’s Vision Pro – which relies on AI and machine learning models to enable room mapping, among other features – has also underperformed from a sales perspective.
But here’s the thing: If the AI category proves to be the bubble many analysts expect, Apple’s diverse portfolio should bolster the company’s fortunes. As much of that portfolio is tied to the company’s hardware ecosystem, a key piece of Apple’s small model approach is a desire to execute as much as possible on-device.
Apple has also invested a lot in servers designed to handle AI computations remotely in the form of the Private Cloud Compute service that launched alongside Apple Intelligence. This is an important short-term solution, at the very least. Meanwhile, DeepSeek’s approach – it released “distilled” versions of its R1 AI model, including one small enough to run on a laptop – lent credence to a future in which accurate generative AI models are run locally on personal consumer electronics. This would be a big win for the iPhone maker.
The immediate question for shareholders listening to Thursday’s call will be what’s around the corner for Apple.
Trailing other companies with regard to generative AI development has led Apple to explore partnerships. At WWDC in June, it announced a deal with OpenAI to integrate ChatGPT into the platform. The company has also kept itself open to future partnerships, even letting slip its plans to eventually partner with Google’s Gemini.
It stands to reason that any generative AI platform would happily partner with a brand of Apple’s stature, but it’s way too early to say what that could mean for some future DeepSeek/Apple partnership. DeepSeek’s U.S. ambitions are tied to U.S./China relations and it’s entirely unclear how that will play out in the coming months and years.
President Trump raised alarm about DeepSeek shortly after its debut, telling the media, “The release of DeepSeek AI from a Chinese company should be a wake-up call for our industries that we need to be laser focused on competing.” The White House has also been exploring what DeepSeek could mean for national security.
There is much speculation around what the current administration will mean to Apple’s own China ambitions, though Apple isn’t sitting on its hands. In spite of past culture clashes CEO Tim Cook announced a $1 million personal donation to the then-President-elect’s inaugural committee. The move came as fellow tech CEOs embraced the reelection of a president Wall Street considers to be exceptionally business-friendly.
Further complicating matters is the administration’s historically adversarial relationship with big tech, which Vice President JD Vance recently described as having “too much power.”
Apple navigated the week’s volatility better than others. But when it reports first quarter earnings after the bell Thursday, Apple needs to lay out a cohesive strategy for AI, iPhone sales in China, and what the future looks like broadly under the new administration. For the first time in a long time, that future is uncertain.
