Despite increasing its investments in AI, Apple still lags behind its Silicon Valley competitors.

• Apple's capital expenditures are significantly lower than its large-cap competitors and are increasing at a slower pace.
• Apple is placing a greater emphasis on artificial intelligence, but its approach differs significantly from that of Microsoft, Google, and Meta.
• In a statement to CNBC's Steve Kovach on Thursday, CEO Tim Cook revealed that there was an increase in the amount spent on AI and Apple Intelligence compared to the previous year, as shown in the company's quarterly results.

The product that was of greatest interest to analysts during the quarterly earnings call on Thursday is not yet available to the public.

The upcoming Apple Intelligence system may lead to a new wave of iPhone upgrades and hardware sales. However, during the analyst call, CEO Tim Cook and CFO Luca Maestri evaded questions about the speed of the rollout, the impact of the service on sales, and Apple's collaboration with OpenAI to integrate ChatGPT into its software.

Cook partially addressed the issue of the company's spending on AI servers, which has been a topic of discussion during tech earnings season as investors seek to determine the progress of companies in their AI infrastructure development and the potential future investments.

On the call, Cook acknowledged that costs are increasing. He made similar remarks to CNBC.

Cook revealed on Thursday that our quarterly results show an annual increase in the amount we're spending on AI and Apple Intelligence.

In the June quarter, Apple recorded a $2.15 billion increase in payments for property, plant, and equipment, representing an 8% rise from the previous quarter and a 3% increase from the same period last year. However, not all of these capital investments are related to AI.

While Apple's capital expenditure has increased, it is still relatively small compared to its large-cap peers, such as Amazon and Microsoft, which are investing heavily in AI-focused data centers equipped with chips.

In the June quarter, Microsoft reported $13.87 billion in capital expenditures, which is a 55% year-over-year increase. Alphabet's expenses jumped 91% to $13.19 billion, while Meta's capital expenditures rose 31% to $8.3 billion during the quarter.

Mark Zuckerberg, CEO of Meta, has explained the increase in spending as a result of game theory. He stated that the risk of missing out on the generative AI boom is greater than the downside of investing heavily in graphics processors and servers. Additionally, Zuckerberg wants to prevent Apple from having complete control over the next major technological shift, which could potentially be AI.

"Zuckerberg stated on a Bloomberg podcast last week that he believes all companies investing are making rational decisions because being behind in technology could put them out of position for the next 10 to 15 years."

Apple is playing a different game.

Unlike Amazon, Google, and Microsoft, Apple doesn't have a cloud business that involves renting out infrastructure to other companies. Similarly, Meta isn't in that business, but the company is investing in training its own open-source large language model and using AI to power its massive recommendation engine.

Apple has disclosed in a technical paper that it utilized cheaper Google TPUs instead of Nvidia chips to train its Apple Intelligence models. On Monday, the company released the initial version of Apple Intelligence, a suite of AI features designed to enhance Siri, automatically generate emails and images, and sort notifications. However, this feature is currently only accessible to developers for testing purposes.

By designing its own chips, Apple can avoid spending billions of dollars on third-party processors, giving it an advantage as it builds out its infrastructure for phones and servers.

Apple employs a "hybrid" strategy for its data centers, which involves shifting some of its capital expenditures to its partners and converting them into operating expenses for the company.

Cook stated on the call with analysts that for CapEx, we use a hybrid approach, which involves doing things internally and working with external partners.

Apple will integrate OpenAI's ChatGPT technology into iOS later this year, while also renting cloud capacity from providers such as Amazon, Google, and Microsoft, like its primary investor, Microsoft, does with GPUs.

Apple declined to discuss the specifics of the OpenAI agreement on Thursday, stating that the information is confidential. However, Cook hinted at the possibility of monetization opportunities.

On Thursday, Apple's quarterly sales rose by 5% to $85.8 billion, surpassing expectations. However, the stock only gained less than 1% in extended trading.

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