Evercore tells investors not to abandon Apple
Investment firm Evercore says Apple is facing weakening demand and strong competition from AI rivals, but investors should stick with it for the long term.
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Apple Park
Evercore tends to be positive about Apple. It remains that way mostly because of continued growth in the App Store, for instance, plus wearables and services.
It remains positive now, but says that its clients have been looking for sell off Apple stock for three specific reasons.
In a note seen by AppleInsider, Evercore reports that investors are looking to move to AI-focused stocks, such as Nvidia. This is apparently a particularly common consideration, with Evercore analysts saying that they are hearing it a lot.
There is also a concern that China demand is weak. Specifically, it's believed that local Chinese firms are regaining smartphone market share.
Then, investors are also hesitant because of the potential impact on Apple of the legal case between the Department of Justice and Google. Separately, it's been reported that Apple could lose as much as $20 billion annually, if Google loses this case.
While acknowledging that all three reasons for selling Apple stock have merit, Evercore says the selling off so far has been overdone. The company is maintaining its $220 target price, and says that it sees multiple ways that Apple can end the slump.
Evercore believes that Apple's strategy of keeping AI on-device expected to debut at WWDC 2024 will be successful. Its analysts say that should make for a better and more popular AI experience for users.
Plus the extended use of AI will drive upgrades of the iPhone, as the AI features require more powerful devices.
Once again, Evercore believes that Apple's Services are underappreciated, and especially so over how it is accelerating. Evercore thinks that the App Store and Apple Music will remain stable, while Apple TV+ will grow.
Evercore also believes that in order to fulfill its previous commitments to investors, Apple will sustain or accelerate its buyback program. The company expects Apple to announce more news about this at its next earnings call.
Separately, investment bank Morgan Stanley has previously made similar conclusions about Apple's AI strategy. It believes that the on-device plan means that Apple is the best-placed firm to benefit as AI goes mainstream.
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Comments
Evercore said on the 4th of March 2024 that AAPL is removed from their "outperform" list.
Now, Evercore is appealing that investors should stick to AAPL for long term.
But the recent moves and rumors are clearly showing that AAPL feels under pressure.
Their ad business on App Store, ads on TV+ need to be realized to cover all potential losses from their sideloading and potential $20 billion wipeout in case Google loses their antritrust case.
The EU made the AAPL´s core value and business weaker than ever. Thanks to the EU (NOT!).
Let´s see how Tim Apple responds to his growth strategy (Does it ever exist?).
Siri needs to be upgraded ASAP.
The only big question is if this time around they will actually use the term AI in its complete umbrella context, double down on ML or try to rebrand AI into something like 'Apple Intelligence'.
Apple could have swallowed up Netflix years ago. They waited.
The TV never came. We got a hobby box instead.
The car project got canceled as others not only delivered solutions but improved on them.
They waited on Intel for a 5G modem.
They are well behind on AI.
The VP was announced as a way of getting a foot in the door. It isn't a mass market product and there is no better testing ground for future mass market products than the real world.
That will grate heavily some people who have incessantly claimed Apple only brings fully baked products to market. That was never true but people like to believe it.
Waiting for Meta to fail would be chancing a lot because Meta isn't alone here. It's an industry march not an initiative by a couple of companies.
AI is so overplayed right now with every company grasping for straws to get in the game.
TV: Would have been crazy to get into a commodity item which is updated annually by companies where TV is a prime product and brand matters. Crazy low margins.
Car: Another industry with crazy low margins as well, but adding maintaining massive parts inventories. Tesla was an anomaly.
Intel Modem: there have been a contractual reason, but no one will ever know
Behind on AI: Can you give us concrete real world examples they should be doing?
VP: Good move to get the market moving and justify to keep developing knowing use cases will go up, the VP will get smaller and run longer, and prices will come down.
Companies have to move forward and accept when there are products that are going nowhere like the car and TV. CarPlay puts you into the licensing game which means skim on every car sold with CarPlay.
AI is handled as needed. Cloud, edge, or device.
Apple's path is exactly the same. There are tradeoffs along the way and also device tradeoffs. A cloud phone will obviously do far less on device than a regular phone, for example.
One of the basic tenets of investing is to not be emotionally attached to your holdings. If something else provides a better return than your current positions, it's worth considering. I dumped AAPL at one moment and invested in NFLX and enjoyed far greater gains.
Here's the one year graph of AAPL
That's right. Not only is it (AAPL in red) trailing the Nasdaq Composite (light blue), it's also behind so called high flyer MSFT (orange) who dethroned AAPL as market cap king.
Meanwhile NVDA (green naturally) and SOXL (purple, a 3X leveraged semiconductor sector fund) are cleaning up on AAPL.
This is a one year graph, the basic timeframe for analyst predictions (LT cap gains), I'm not cherry picking for a shorter timeframe.
There's nothing that says you need to liquidate all of your AAPL positions but right now, there are far better places in the market to stick your money, especially because AAPL isn't underperforming the Nasdaq Composite.
So don't cut AAPL from your portfolio. Just be aware that there are many other well known, well run Fortune 50 companies that can provide a greater ROI that AAPL. Investors like Warren Buffett rebalance their holdings periodically to address the constantly changing market.
AAPL has not been a stellar investment for years. It's solid but it behaves more like a value stock than a growth stock these days.
TV: A car is a commodity item for many and Apple spent ten years trying to design one. A TV would be a piece of cake (at least in theory). Upgradeability is a non-issue if that is what is sought. Manufacturers can use breakout boxes for the 'computer related' tasks and upgrade those in exactly the same way they do with the Apple TV. Cameras can be detachable and as such changeable/movable. Margins on an Apple TV wouldn't be crazy low of course, and precisely because of brand clout and integration.
The car: A car was considered, so massive parts inventories and the like were obviously on the table long before the project even got the go ahead. Apart from the industry moving faster than Apple and probable management issues, Apple didn't deliver in time or simply bit off more than it could chew.
Behind on AI: If they had anything competitive to show they wouldn't have made such an effort to not even say the words last year. Plus, they would have delivered something. They didn't.
Since then, those competing products have evolved at a very fast pace. This time around things are worse. Sales impacted in China and at least part of the reason is phones that aren't considered competitive (and AI is part of that in industry terms). No AI offerings to compete with what has been on the market for two years now. Car project shut down. 5G modem nowhere in sight. The VP is out there but far from a revenue driver. The result is a spotlight on stock performance and outlook.
To counter that we now see Tim Cook willing (at last) to tackle the subject of AI but with nothing but words at the moment.
All bets are on a WWDC awash with AI and probably shipping at best by year end and at worst, a lot of 'placeholder features' with basic abilities, which will at least allow them to claim they shipped something while working to make it better down the line.
Having had 'ML for years' as some kind of rebuttal to claims that it is behind doesn't mean anything (it's actually a very poor line) because everybody else has also had that too, for years (and arguably done more with it).
On the specifics, just look around at all the AI related progress and check if Apple has an equivalent solution.
Generative options are probably what Apple will try to 'sell' at WWDC. That makes sense, but they'll have work hard to make them sound new and fresh. At the keynote at least which is their software messaging platform and perfect for getting word out. As for products though, they are unlikely to arrive until year end (unless they opt to release public betas for new solutions).
A big question mark hangs over whether they will try to monetise part of the new AI options.
The problem with CarPlay is that in some major markets it's never going to gain access to certain brands' internals as they already have superior solutions with hooks deep into the cars (and outside).
Even on home turf there appears to be some pushback by local manufacturers like GM trying to push CarPlay aside.
TV was always a commodity unless Apple could offer it as a media center. Of note; WalMart is purchasing Visio in $2.3B deal, in order to place ads to WalMart shoppers.
The car was never going to happen unless it achieved Level 5, the margins wouldn't justify it. It didn't. Waymo is at Level 4. Level 5 is extremely difficult.
CarPlay; Yeah, Apple doesn't have a presence in China.
So, that leaves AI, and as far as I can tell, Apple is in a lesser position than pure AI providers, for example, OpenAI, and Big Tech cloud providers, Microsoft and Google.
Apple certainly is capable of AI advancement and certainly has the ability to buy small, and medium sized AI companies, should they desire to. Frankly, I don't see them as far behind as you do, simply because Apple can easily make the edge case to 2 Billion unique users based on its ecosystem of hardware and software. What that turns out to be is unknown, but sure, nothing really to show today. I expect that to begin happening at WWDC.
https://twitter.com/DelRey/status/1764786498967134280
I expect that the EU would step in and legislate free "rent" for indie sellers on Amazon, at some point, but I can't imagine any regulatory entity in the U.S. doing the same.
But that's not the same thing as thinking that AAPL is a good investment at this particular point in time.
China poses a massive risk to AAPL, even more so on the supply side than the demand side. If China demand goes to zero, Apple can still sell a lot of products to the rest of the world. But if China supply were to go to zero, Apple would have almost no products to sell. Naturally it's impossible to know what goes on behind closed doors, but from public appearances, Apple is not de-risking enough. We can only hope that they are trying to appease the Chinese government by making public appearances different from the reality of what's going on behind the scenes. Buying AAPL on blind faith that Apple understands the risks China poses and is doing something about it is pretty risky, though, when public appearances are to the contrary.
Setting aside China, Apple management needs to make better choices in other areas, too. I believe Mac market share could at least double if Apple management invested the level of effort in gaming on the Mac that they have invested in Apple TV+. I also believe that Apple is fully capable of building a platform for training AI on their own silicon and software that would enable them to avoid paying billions to Nvidia. They could then make that platform available to Apple developers and users, both by selling hardware and by making cloud resources available. I'm close to giving up hope that Apple will ever realize their full potential on gaming. I still hold out hope that they will realize their potential in AI.