Apple new CEO John Ternus faces defining challenge: Fixing AI strategy

Apple has maintained its dominance in consumer devices and built up a $4 trillion market cap despite largely sitting on the sidelines of the artificial intelligence boom. But investors won’t remain patient forever, and they’ll be looking to new CEO John Ternus for a clearer strategy when it comes to playing in the hottest market on the planet.

Tim Cook’s 15-year tenure as Apple CEO comes to an end on Sept. 1, the company announced on Monday. Ternus, Apple’s longtime hardware boss, is taking over, becoming just the second leader since Steve Jobs departed in 2011, less than two months before he died from cancer.

As Cook exits, Apple faces numerous challenges, including an intricate supply chain that’s complicated by geopolitical tensions and soaring prices for memory due to unprecedented demand from the AI buildout. But for Ternus, perhaps the most critical aspect of his new job will be pushing the company deeper into AI, where it’s lagged many of its megacap peers.

So far, Apple’s AI strategy has involved avoiding hefty capital expenditures while Microsoft, Google, Amazon and Meta commit to hundreds of billions of dollars a year in combined capex to fund new data centers and fill them with pricey AI chips. When it comes to developing a foundational AI model, Apple has punted there as well, and is instead counting on Google’s Gemini to power its AI features, including a major Siri upgrade expected later this year following a delay.

In 2024, Apple launched Apple Intelligence, which includes image generators, text rewriters, the ability to summarize push notifications and an integration with OpenAI’s ChatGPT. Consumer response has been mixed, but Apple continues to sell boatloads of iPhones, and users are getting plenty of AI options on those devices —just from other companies.

ChatGPT and Anthropic’s Claude are currently the two most popular free iOS apps, with Gemini at fourth and Meta AI at eighth. Meanwhile, Apple is betting that within a few years, hefty workloads will run on a chip inside the phone, which will play to its strengths as the company has been integrating AI-capable silicon into its devices since 2017.

“By choosing a hardware leader in John Ternus, Apple may be signaling that it still believes the future of AI will run through tightly integrated devices, not just software,” said Timothy Hubbard, assistant professor of management at the University of Notre Dame.

For the moment, Apple is getting plenty of growth from iPhone sales. In the latest quarter, iPhone revenue surged 23% from a year earlier to $85.3 billion, a jump the company attributed to strong sales of the iPhone 17 models released in September.  

Cook said at the time that iPhone demand was “simply staggering.” The company is scheduled to report fiscal second-quarter results next week. Cook will still be CEO for that report, but investors will have plenty of questions directed at Ternus and where he sees Apple headed.

AI-enabled hardware appears to be where…