Apple financial results: capitalising on AI without massive spending

Apple's latest earnings report highlights how the company continues to capitalise on the artificial intelligence boom without exceeding its budget on massive infrastructure spending like its industry competitors. Overall, the tech giant posted its best-ever fiscal year for revenue and earnings per share.

Key highlights from the financial earnings report: - iPhone revenue rose by 17.5% year-over-year to a record $57.6 billion. - Mac revenue climbed 24% to $10.8 billion, reaching a four-year high. - Capital expenditures remained low at $2.2 billion for the quarter. - AI and Apple Intelligence were mentioned a record 45 times during the earnings call.

Strong revenue growth and device sales

During the fourth quarter, iPhone and Mac sales continued to experience strong growth. Despite premarket shares falling following warnings about rising memory costs impacting profit margins, Mac revenue reached its highest level in four years. Chief Financial Officer Kevan Parekh noted that AI offers a compelling reason for customers to upgrade and switch to the latest capabilities.

John Ternus, on his first earnings call as CEO, emphasised the tremendous opportunities seen in AI. According to AlphaSense, AI and Apple Intelligence were mentioned a record 45 times during the call. Apple continues to position itself as the primary interface through which consumers access various AI services, including third-party technologies.

Unique infrastructure strategy and lower CapEx

Unlike its Big Tech peers such as Amazon and Alphabet, Apple is not channelling comparable sums into infrastructure development. Its strategy combines on-device processing, proprietary servers, and external AI technologies. Siri AI incorporates models developed with Google's Gemini technology, while capital expenditures reached only $2.2 billion last quarter.

For comparison, Amazon's capital expenditures hit $77.3 billion and Alphabet's reached $51.4 billion. Apple's operating expenses rose by 21% to $19.2 billion due to increased R&D investments, yet its overall capital spending remains a tiny fraction of its competitors, leveraging its active base of over 2.5 billion devices.

Monetising artificial intelligence and local execution

Apple plans to monetise specific AI usage through subscription models. Features relying heavily on server-side models, such as Siri AI and advanced photo editing, will feature usage limits, allowing customers to purchase expanded access in the future, much like iCloud storage tiers.

Furthermore, Apple benefits significantly when customers purchase Mac hardware to run AI models locally. Companies like Gap and Christie's utilise Mac Mini and Mac Studio computers to run local models, avoiding cloud token costs. Apple successfully generates revenue through hardware sales, subscription commissions, and upcoming service fees without building massive infrastructure.