Apple leapfrogging the leaders in the AI race and delivering the first killer use of AI.

The so-called laggard jumping to historic highs.

Apple also pushing to new record highs and reclaiming the title of the world's biggest company from Microsoft for the first time this year. With an AI that's not just indexing the world, solving math problems or translating languages, but an AI that is all about you.

It has to understand you and be grounded in your personal context and already in your pocket. I'm Deirdre Bosa and this week on Tech Check, Apple takes the AI lead.

Apple may have just pulled ahead of the leaders in the high-stakes AI race.

It didn't just promise us another chatbot, it promised us a personal assistant. The best explanation of what is going on right now came from DA Davidson, where the analyst said AI now stands for Apple Intelligence.

AI assistants or agents, they are the holy grail of gen AI at the moment.

It's killer use case.

And at WWDC, Apple showed us one that we can use with our existing device or an upgrade. Siri, when is my mom's flight landing?

What's awesome is that Siri actually cross-references flight details that my mom shared with me by email with real-time flight tracking to give me her up-to-date arrival time.

Possible only because of Apple's singular combination of hardware, software, wide base of users, and personal data. Our phones, tablets, and laptops, they know more about us than any other device with access to our texts, emails, calendar, and all the apps and all the information within them.

Applying gen AI to that data set would make Apple Intelligence more efficient in a way that other players just haven't. And there are already some really impressive chat tools out there that perform a vast array of tasks using world knowledge.

But these tools know very little about you or your needs.

Here's one striking example.

It can understand who my daughter is, the play details she sent several days ago, the time and location for my meeting, and predicted traffic between my office and the theater. Understanding this kind of personal context is essential for delivering truly helpful intelligence.

Truly helpful artificial intelligence.

Making use cases before it look abstract or even gimmicky.

Like OpenAS, unveiling of GPT-4.0 involved telling jokes and singing lullabies.

A lullaby about majestic potatoes.

Now that's what I call a mashup. Google's Project Astra told an alliteration and remembered where glasses were placed.

Do you remember where you saw my glasses?

Yes, I do.

Your glasses were on the desk near a red apple. To be sure, remarkable showcases of how far generative AI technology has come, but somehow less complete and intuitive than Apple's AI.

Microsoft doesn't have it on the personal side, neither does Google, neither does Amazon.

They all have pieces of the puzzle, but they don't have the whole picture.

They don't have all the personal texts, all the personal emails, the personal health information. Apple intelligence promises the entire picture, without any of the friction.

They look at the technology and they say, how can we play to our strength as the maker of the hardware and beat everyone else who's focused on either hardware or software?

And that brings us to another key advantage, Apple's user base. What we're seeing now is that huge installed base of devices of over 2 billion is becoming a huge competitive advantage because of all of the personal data that Apple has on consumers.

And it's unlike any other company. A huge audience of people, some of whom will have the technology already in their pockets, able to call it up by pressing a button or saying, hey Siri, instead of having to open the chat GPT app or browser. The tech that powers Apple intelligence is already inside Apple's latest generation devices, custom silicon, the M line of semiconductors.

The company has been developing for over a decade.

Those chips have dramatically improved phones, iPads, and Macs by making them more powerful, efficient, and secure.

And now they're the key to Apple AI. They're so cutting edge that AI computing can happen on the device itself instead of being sent to the cloud.

The cornerstone of the personal intelligence system is on-device processing.

We have integrated it deep into your iPhone, iPad and Mac and throughout your apps.

So it's aware of your personal data without collecting your personal data. It's the ability to process and analyze huge amounts of data and respond quickly without tapping into servers and data centers located far away from the user. Apple made its case for AI while relegating chatbots like chat GPT and Gemini to features, not products in and of themselves.

There are other artificial intelligence tools available that can be useful for tasks that draw on broad world knowledge or offer specialized domain expertise.

We're starting out with the best of these, the pioneer and market leader chat GPT from OpenAI powered by GPT 4.0.

And incorporating other models like Google's Gemini in the future. Apple making the point that these models are commoditized for the mainstream user.

They're widely available, accessible and not that differentiated.

A feature in the larger Apple platform of vertical integration, giving it a unique edge over other players. The iPhone is still the best device out there for this early age of AI.

It's multimodal like AI is becoming.

A smartphone fits in your pocket, sees through its camera, listens, and talks back and texts when it needs to. Newer form factors have fallen flat, like the humane pen.

Anything that you would search the web for or even use chat GPT for, you can use on your pen.

And the rabbit, R1.

I just created an order for a 12-inch pizza.

It's going to be hand-tossed with a classic marinara sauce and topped with regular cheese.

Please confirm your order.

It's also the new worst product I think I've ever reviewed.

There's just so many things bad about it.

Far from ready for primetime.

Weak battery life.

This one can sit in front of you doing nothing and the battery just visibly is draining and dies in like four hours.

Slow.

What's the weather?

Finding your temperature.

Missing features.

Translate this text into English.

Sorry, the translation feature is not available in vision mode.

Prone to overheating.

But this ran so hot that I accidentally burned myself several times while either crossing my arms or leaning forward.

Often inaccurate.

What is this?

You are holding a taco.

And plagued by a host of other issues. I think AI gadgets might just be impossible.

But VC investor Vinod Khosla points out that all devices in its first iterations have shortcomings.

People forget.

When the iPhone was born, you couldn't even change the home screen.

You couldn't copy and paste for three years after the iPhone was introduced.

That getting to a million devices, that is the tipping point.

Once you get to a million devices in use, you get so much feedback from the maker of the device that the real advantage in improving it and continuing to add features and capabilities. Khosla argues that the AI device of the future may not be a smartphone.

This new kind of device for very rapid, quick interaction to get things done, to send yourself a note, a reminder, look across Google traffic and Uber arrival times and where you need to get to from your calendar.

All will be done by an agent, AI, just by telling it, make sure I'm on time for my next meeting.

And that interface has to be less than 10 seconds, not open a phone, open multiple apps, and try and do these complex things.

They'll be done for you. Apple Intelligence will also have to deliver.

And it will have to be good enough for users to shell out for an upgrade.

It'll only be available on the iPhone 15 Pro, its latest, more expensive model with better capabilities and an upgraded chip.

But most iPhone owners, they carry an earlier model and they're waiting longer to upgrade. Apple and its investors are banking on those owners to upgrade when Apple unveils a new model in the fall.

Some owners may want to wait and see how the new technology actually works in the wild.

Apple's AI demo was taped and carefully produced, but we've seen from OpenAI, Microsoft, and Google demos and launches that generative AI tools are imperfect and unpredictable in their first iterations. From AI laggard to potential AI leader, Apple is another reminder that the AI arms race moves quick and has a lot more room to run.