The rise of generative artificial intelligence (AI) continues to be the talk of the town in the first two months of 2024. As more companies join the generative AI party, the theme doesn’t look like it’s about to chill out. ChatGPT impressed a lot of investors when it went mainstream. And with incredible text-to-image, text-to-music, and even text-to-video AI models just around the corner, investor demand for more things AI could stay intense.
There’s been some buzz about what could be possible as smartphones and AI collide. One can’t help but imagine the possibilities for what AI could bring to the smartphone world. If 2024 is, in fact, the year that “AI phones” become a thing, the following plays seem worth keeping tabs on:
Apple (AAPL)
Apple (NASDAQ:AAPL) stands to be an intriguing name to watch later in the year as we gain a glimpse into what type of generative AI innovation CEO Tim Cook has brewing over in Cupertino. Given Apple doesn’t tend to spoil surprises ahead of schedule, only time will tell if some sort of AI iPhone is in the cards in the back half of 2024. Either way, Apple needs to find a way to get users to make the jump from some of the more dated models. Perhaps edge (or on-device) AI could be key for future iPhone releases.
Indeed, the average age of iPhones users only stands to get older as some choose to forego upgrading to the iPhone 15 line. Given all the hype surrounding generative AI, I would not be surprised if Apple taps into its AI strengths to make its next phone a must-buy device.
In the meantime, AAPL stock could continue to be a drag as investors overlook Apple’s AI prowess. I think it is pretty much investor consensus that Apple lags behind its rivals in AI. This may be far from the truth. Indeed, it seems like many investors just aren’t patient enough to wait for the company’s AI vision. However, Bloomberg’s Mark Gurman believes it could be made apparent in 2025.
Alphabet (GOOG)(GOOGL)
Alphabet (NASDAQ:GOOG)(NASDAQ:GOOGL) is another company that could become a major winner if AI phones become the next big thing for the smartphone world. Undoubtedly, Google is one of the most capable AI companies out there, even though its Gemini model continues to attract negative press for its embarrassing blunders.
Apart from being a major player in AI, Google also has its Pixel smartphone. It could certainly use an injection of new AI innovations to win over the smartphone crowd. Though the Pixel has plenty of intriguing AI tech running behind the scenes, I think a sophisticated on-device AI upgrade may be needed to effectively compete with other devices on the market.
For now, Google’s reputation on AI may have taken a few backward steps following Gemini’s image generation mishaps. The good news is that CEO Sundar Pichai took ownership of his firm’s missteps. He referred to recent Gemini problems as “completely unacceptable.” He also committed to changing how the firm goes about releasing new AI products.
Taiwan Semiconductor (TSM)
Finally, we have Taiwan Semiconductor (NASDAQ:TSM). It’s been a while since the market has enjoyed a true super-cycle but TSM stock is poised to win if AI phones spark one. I think sophisticated edge AI technology could be enough to power a wave of upgrades. In any case, Taiwan Semiconductor recently said the smartphone market is beginning to bottom out.
Undoubtedly, AI phones could help smartphone makers further differentiate themselves from the pack. The firm with the best AI capabilities may just have the means to grab more smartphone market share. For now, I have no idea which phone maker will be best able to combine smartphones with cutting-edge on-device AI.
Either way, Taiwan Semiconductor stands to win, given its massive role in the smartphone world. At 26.2 times trailing price-to-earings, the stock looks like a pretty cheap breakout play if 2024 does mark the start of some sort of AI phone trend.
On the date of publication, Joey Frenette owns shares of Apple and Alphabet (Class C). The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.