Apple (AAPL) shares are rising to intraday highs as investors digest the tech giant’s newly announced AI initiatives. Needham senior media and internet analyst Laura Martin joins Market Domination to discuss Apple’s AI play as it enters the game relatively late.
Martin explains that Apple “is really uninteresting as a stock unless they’re going to use generative AI to drive an iPhone replacement cycle, and iPhones are over 50% of their total revenue. And I just didn’t hear that yesterday. So that means I didn’t change my estimate.” She reiterates her projection that Apple’s revenue will grow 1%.
However, the analyst maintains a Buy rating on the stock, stating, “as a shareholder, you want to be in Apple this year while they’re returning share cash to you. But in four years, you don’t want to be anywhere near the stock because it’s going to be in a strategic box. Whereas these other companies that have already spent the money four years from now are going to be sort of riding the big wave of generative AI innovation.”
For more expert insight and the latest market action, click here to watch this full episode of Market Domination.
This post was written and updated by Melanie Riehl
Video Transcript
Apple here, those shares are rising to intraday highs after as investors are digesting the tech giants announcement of its A I platform.
This comes as a reversal to declines in the stock after Apple’s keynote presentation yesterday.
For more on what can drive gains for Apple.
Let’s get to Laura Martin Needham, Senior Media and internet analyst.
Laura, it’s great to see you as always, you were not terribly impressed by what we heard yesterday and I did think it was interesting that there was sort of this stock reaction and now the shares are rallying again today.
What do you make of it?
So, I mean, I think that they are um you know, they just talked for 65 minutes about new colors and emojis and capabilities and I felt like a snap ceo talking like we’re gonna target 22 year olds um when their average owner, you know, smartphones in their forties and in the top, you know, 10% of, of incomes globally.
But uh so I thought that was weird and then they did generative A I sort of in the last 20 minutes and I think Wall Street only cares about generative IY because apps a lot like their revenue is down last year, 3%.
And this year we’re projecting 1% revenue growth, which is really uninteresting as a stock unless they’re gonna use generative A I to drive an iphone replacement cycle and iphones are over 50% of their total revenue.
So, and I just didn’t hear that yesterday.
So that means I didn’t change my estimate or the consensus estimate also didn’t change, they’re gonna grow revenue at 1%.
Like let’s go to sleep guys and let’s put our money somewhere else.
So you saw selling throughout the keynote speech because we just don’t like nobody’s changing their estimates today based on gen A I and you have to wait a year.
They only do these upgrade updates once a year and they only do sort of product upgrades once a year.
So now we didn’t like what they said yesterday.
We’re gonna wait a year to figure out whether we like what they say next year about gen A I but Laura correct me from you do have a buy on this name, right?
Yeah.
So how come, what, what are the, you weren’t excited by what Tim Cook had to see on stage yesterday, but you must be excited by something.
Laura, what are the catalysts ahead?
So uh let’s see.
Um Google which is alphabet, Amazon and Microsoft are all spending $100 billion building large language models for Gen A I because they’re gonna take a 10% tithe on every dollar earned in their clouds on gen A I.
That’s interesting.
Strategically, long term, really bad for the P and L. Your returns on capital are falling in those enterprises this year and next year and then they’re gonna dominate the world.
Apple sit with Apple.
Apple’s not, not raising their Capex guidance at all, not a dollar, but they just announced $100 billion share repurchase telling you they don’t think they have anything better to do with their money than return it to us.
So while I just told you that our sales are gonna go up 1% their EPS is gonna go up 8% because they’re buying in shares, which is putting a floor under the shares.
So as a shareholder, you want to be in Apple this year while they’re returning share, you know, cash to you.
But in four years, you don’t want to be anywhere near the stock is gonna be in a strategic box.
Whereas these other companies that have already spent the money four years from now are gonna be sort of riding the big wave of generative A I invasion.
Laura, what I’m really curious about though, you know, as I heard Apple yesterday, even if you weren’t that excited by what they were saying, you know, in terms of generative A I and the role it plays in our everyday lives, it’s virtually zero.
Right.
Yes, I Google something and it summarizes something with A I at the top page big deal.
I, I’m, I got my face in this thing all day long and now it’s gonna have A I integrated.
So isn’t this really gonna be most consumers first?
Real opportunity to be convinced that they need A I functionality?
Uh No, I don’t think so.
I mean, I, I, about half of my companies are using generative A I, today I was on a call and they’re gonna do panels.
They’re gonna make look alike.
I’m gonna call it people or proxies of people that looks like a Bulls fan.
And then they’re gonna run advertising by that generative A I panel to figure out before they actually run a test market in the real world, which is a million dollars to figure out which ad that’s gonna lower the cost of advertising.
I have companies not using an ad agency anymore because they’re having generative A I create the ad, put the music to the ad and, and create different slogans and put them different places with A B testing themselves.
Generative ads, you know, writes text, it writes headlines, it personalizes things all in real time at, you know, 1/10 of the cost of the old world.
So, no, no, I think Generative A I is, is here to stay and they, a lot of companies are making a point of how they’re using Generative I today, not tomorrow.
Not when they launch their next product in September or December, like Apple said, they are using generative A I today and a lot of my companies are saying they’re going to cut cost 20 to 30% in areas where they’re using generative A I to replace people like in services or chatbots, which we’ve seen a lot of so far.
Laura, it is always good to have you on the show.
Thanks so much for making time.
