Now that the dust is settling a bit after Apple unsurprisingly announced price increases across its hardware lineup, I have to say that I’m quite bemused to see the pocket book hit being called the AI Tax.
I wasn’t clever enough to use that descriptor when I posted about the news shortly after the announcement, but I had been paying enough attention to immediately point the finger of blame at the costs associated with Artificial Intelligence. I think Jonny Evans was the first to coin the phrase AI Tax. For what it’s worth, I hope the phrase AI Tax sticks. Sticks hard and deep. And twists the knife. Because it’s going to affect much more than just the cost of MacBooks, iPads, Apple TVs, and other gear designed in California.
While other tech companies had already started raising prices due to the AI Tax, (talk to anyone in the gaming market) Apple’s announcement is one that brought real shivers and shakes to consumers, the stock market, and boardrooms around the globe. Whether mostly myth or prescient business practices, Apple’s reputation for being ahead of the curve when it comes to purchasing large supplies of chips to withstand market pressures is and was such that tech companies in other sectors often found themselves facing sold out inventories or higher prices when it came time to make their orders. The “Apple Tax” extended far beyond the high cost of Apple products.
That rep and Apple’s stock took a dive on the news. Apple recorded its second biggest market drop in its history, dragging the NASDAQ down with it. Heading into the weekend there’s consternation brewing about all of the chip releated businesses going forward. (Hint: that’s most businesses these days.) But then again, the stock market is not much more than a wild ride in an aging prediction market, so who knows how that will unfold as a holiday week begins on Monday.
Word came via The Financial Times Friday night that Tim Cook was calling in some chits on chips with the Trump administration, attempting to circumvent chip bans balled up in the trade war to and fro with China. If successful, that would allow Apple to buy banned chips that the Pentagon is hesitant about, given that they are built by state controlled Chinese companies. According to the report this lobbying had been going on for a month or so prior to Cook’s first warning a week before the price hike announcement on Thursday.
The timing hints at a bit of public hardball lobbying from Apple. (Note that the price increase announcement wasn’t a Friday news dump after the market closed. However, The Financial Times article came after no known action from the administration post Apple’s announcement.) Shake the markets and try to wrest the attention of the administration fighting losing battles of its own making with bodies of water in the Middle East and in its own backyard. I’m almost surprised Apple hasn’t been called a vandal yet.
As I said earlier, this is going to have far reaching implications beyond the consumer gadget markets. Chip capacity has to increase, or the demand for higher bandwidth memory has to decrease before any of the predictions that this will subside in a few years. (There’s a good read on this from Imran Valiani here.) On the current trajectory, fueled by still increasing hype to combat building blowback, I don’t see that timeline materializing. This news might bobble the bubble, but I don’t think it’s ready to pop.
Costs are going to rise across the board. It’s not just consumers that purchase computers who will take the hit. And it’s not just the purchase of computers that will drive an inflationary spiral. Yep, that’s the I-word that no one likes to hear, especially politicians. Everything is a computer these days, or at least has some form of chip in it. And, in my opinion, too many companies have jumped on the AI bandwagon far too soon to understand the long term ramificatinos. All of those costs will be passed down the line to consumer pocket books.
I also don’t think we’re going to see these price pressures subside to pre-AI Tax levels. I’m old enough to remember when new cars used to have price ranges well below $5,000. That obviously makes me prehistoric, but I can remember watching The Price is Right featuring cars as the grand prize with contestants guaranteeing at least their first guess was accurate by chosing the number two for cars that would be priced at $2995. That’s a memory that doesn’t require a chip. Although streaming those old shows does.
Like it or not, Apple’s success since the launch of the iPhone, has been a key piece of U.S and global economic growth with much of the tech sector following along and prospering in its wake. Apple’s recent announcements are probably one day going to be viewed as just as big a marker going forward as the release of that first iPhone.
It feels to me that we’re entering into a price curve trajectory for computing on all levels that will follow a similar trajectory as the automobile market. The financial markets will find ways to love it as financing will become a key driver to cover costs while the markets get used to price points for signature hardware starting much higher than the $1000 price point today. There’s got to be a way for the bankers to cover all of the borrowing associated with the build out of data centers.
Over the years the myths of Apple being doomed have largely been just that. Myths. Apple always found a way. This turbulence probably won’t change that. But the AI Tax will change things for all of us in ways that we’re just beginning to understand. Inept global political and corporate leadership easily taken advantage of by hype-masters and hucksters have paved the way to this moment.
And all of this for a still largely unproven technology.
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