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Apple CEO Tim Cook is excited about AI, virtual reality and 'Pokemon Go'

The iPhone becomes more — not less — relevant with the emergence of artificial intelligence (AI), Apple CEO Tim Cook said on the company's earnings conference call.

"AI makes it more and more important, as the phone becomes your assistant," said Cook. "In terms of AR [augmented reality] and the Pokemon phenomenon, it's incredible what has happened there."

Apple was investing to make sure its products worked well with products like Nintendo's AR game "Pokemon Go," Cook said.

"That's the reason you see so many of the iPhones out in the wild right now chasing Pokemon," he said.

The game's success was a testament to the strong app ecosystem Apple had built, which encouraged developers to invest in building apps for the platform, he said. Cook mispronounced the app's name, repeatedly calling it "Poke-man Go" on the call - a hint that even the biggest tech stars can find it tough to keep up with the sector's trends - but analysts knew what he meant.

Apple could generate as much as $3 billion in incremental high-margin revenue from "Pokemon Go" over the next one to two years, Needham analyst Laura Martin wrote in a note to investors last week.

The app's success underscored two key strengths for Apple that investors may not fully appreciate, Martin explained. Apple was considered the distribution platform of choice for mobile content winners and had the wealthiest customer base and, assuming Apple collects its usual 30 percent on Pokemon GO's iOS revenue, the game could generate upside to earnings and valuable options on future hit games.

It is all part of the tech giant's broader plan to boost revenue from services, software and apps.

Apple reported revenue from services grew 19 percent in the quarter. "We have been and continue to invest a lot in this," Cook said. "We are high on AR for the long run."

This was a pivotal moment for augmented and mixed reality, Piper Jaffray analyst Gene Munster said, in light of the success of "Pokemon Go." In chasing augmented and virtual reality, Apple was going up against the likes of Facebook with Oculus, Microsoft with HoloLens and Alphabet's Google, in an area that investors were increasingly interested in playing in, Munster said.

"I think we're probably going to look back at this and say this was when we started to realize that it real," he said.

Apple has also invested in machine learning in order to make its products and services better, said Cook, which meant more relevant app recommendations and news, improved facial recognition in photos, more accurate predictive text and better directions in maps, all aimed at improving the user experience. Deep learning also enabled Apple to recognize usage patters and improve battery life, he said.

"Most importantly, we deliver these intelligent services while protecting users privacy," Cook added.

That was because most of the AI processing happened within the device, versus in the cloud, Cook explained. Starting in the Fall, Apple will use sophisticated technology called "differential privacy" to enhance its services without compromising user privacy, he said.