When panic over China’s DeepSeek wiped about $1tn from global technology and energy stocks on Monday, Apple was one of the few Silicon Valley companies to see its shares rise.
Apple’s long-awaited launch of generative artificial intelligence features over the past three months has been hit by delays and bugs, denting hopes on Wall Street they would help deliver an immediate iPhone sales boost.
But some investors and analysts believe DeepSeek’s low-cost AI breakthrough vindicates Apple’s strategy and presents an opportunity for the iPhone maker to catch up more quickly with rival Google.
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.
Unlike Meta, Microsoft and Google, Apple has so far eschewed committing billions in new capital expenditures into data centres, just for AI. Instead, it offers ChatGPT if the iPhone’s on-board assistant Siri cannot handle a query. Apple has said it could partner with Google or other large language model makers in the future too, as it focuses its own AI efforts on systems that can run locally on an iPhone.
“We believe that [Apple] could emerge as a relative winner in this debate,” analysts at Morgan Stanley wrote in a note to clients on Tuesday. “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.”
Apple did not comment.
The iPhone maker is in need of some good AI news, as it prepares to release its latest quarterly results on Thursday.
An update to Apple Intelligence this week removed one of its key features, after a backlash from publishers and broadcasters over automated news summaries that showed false or misleading information to iPhone users. Apple said it planned to reinstate AI summaries for news apps after making “improvements”.
The iPhone maker’s mis-step threatens to undermine chief executive Tim Cook’s argument that he was comfortable with not being first to deliver the latest AI products to consumers, preferring instead to focus on being the best.
Apple Intelligence’s faltering rollout has only widened the gap between the $3.5tn company and its Big Tech rivals. Google’s Gemini models are now integrated into the smartphones of Apple’s top competitor, Samsung, which earlier this month unveiled its latest AI smartphone, the S25.
Analysts warn the launch of Apple Intelligence has so far failed to deliver any hoped-for surge in iPhone sales, with its other AI features such as image generation and writing tools also struggling to excite customers.
Apple’s stock climbed 34 per cent between June’s unveiling of its AI features and a new all-time high of $259 on December 26, on optimism that Apple, a latecomer to AI, could use the iPhone’s loyal customer base to catch up. However, as that confidence waned, Apple’s shares have fallen about 9 per cent since December’s peak, amid broader concern about the Trump administration’s tariff plans.
Analysts at Jefferies last week lowered forecasts ahead of Apple’s earnings report, expecting it to miss its growth guidance for the quarter due in part to “slower AI uptake and commercialisation”, as well as continued competitive pressure in China. Bank of America analysts also lowered their iPhone sales estimates on similar grounds.
They echoed warnings from Apple supply chain analyst Ming-Chi Kuo, who wrote earlier this month that there was no evidence Apple Intelligence had boosted iPhone demand, cautioning against “market over-optimism” about the ability of the features to translate into hardware sales.
Gene Munster, managing partner at Deepwater Asset Management, said Apple Intelligence marked a rare “false start” for the world’s most valuable company.
“I think their hand was forced to move faster than they typically do,” he said, after the breakout success of OpenAI’s ChatGPT triggered a race by the biggest tech groups to capitalise on the fast-developing AI sector.
The news summaries were part of an initial set of AI features introduced in October, followed by a much-anticipated integration of Siri with ChatGPT in December, when Apple Intelligence also launched in the UK.
Yet despite Apple’s huge AI marketing push, iPhone shipments were down 4.1 per cent year on year in the crucial December quarter, according to estimates from market researcher IDC. Overall, global smartphone shipments were up 2.4 per cent, IDC said earlier this month.
Apple has taken a staggered approach to its AI launch and has yet to offer Apple Intelligence in languages other than English and local variants, reducing the new iPhones’ appeal in much of the world. It faces hurdles in its second-largest market, China, where its models and potential partnerships with the likes of Baidu must pass regulatory scrutiny.
But the techniques for developing AI showcased by DeepSeek present Apple with an opportunity to make up lost ground more quickly. The Chinese start-up was able to train a cutting-edge AI system with a fraction of the resources of OpenAI, Google and Anthropic, as well as serve up responses to complex requests far more efficiently than larger US models.
As DeepSeek has published many details of how its model works and released it under an “open source” licence, Apple could also adapt it to launch its AI features in China.
“People are waking up to the reality that you’re going to be able to do a lot on [smartphones],” said Ben Bajarin, analyst at Creative Strategies.
Nonetheless, Bajarin said Apple had a long road ahead of it to convince consumers that its AI features were useful. “Right now this is just to set the foundation to keep building on,” he said. “They’re still fleshing this out in real time.”
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