How Apple became an AI stock

🌈 Abstract

The article discusses the recent surge in Apple's stock price, which has been attributed to the company's perceived involvement in the AI industry. It analyzes the changes in analysts' expectations and Apple's valuation, and explores the potential reasons behind the stock's performance.

🙋 Q&A

[01] Apple's AI Halo

1. What has happened to Apple's stock price since May 1?

• Apple's stock price has risen by 24% since May 1, adding over $600 billion to the company's market value.

2. How have analysts' expectations for Apple's financial results changed over the past two months?

• There has been basically no change in estimates for Apple's revenue or earnings this year or for 2025.
• However, expectations for revenue and earnings growth in 2026 and 2027 have increased by 4 and 8 percentage points, respectively, since the start of May.

3. What events over the past two months might explain the changes in Apple's stock price, estimates, and valuations?

• The better-than-expected Q1 earnings report on May 2, which included a larger-than-expected dividend and share buyback announcement.
• The June 10 announcement of a partnership with OpenAI to support a new feature called "Apple Intelligence" on Apple devices.

4. What does the author think about the significance of the announced capabilities of Apple Intelligence?

• The announced capabilities, such as proofreading, editing tools, emoji customization, and better language interpretation for Siri, do not seem likely to drive a device upgrade cycle among consumers.

5. What does the author suggest about Apple's approach to new technologies?

• Apple's strength is in perfecting rather than pioneering new technologies, and it makes sense that the company might make some of the most useful versions of AI applications when they emerge, given its strength in user interfaces and its large user network.

[02] The AI Bubble

1. How does the author compare Apple's position in AI to that of Meta, Microsoft, and Alphabet?

• All four companies are linked by the assumption that the economic might and market position of their legacy businesses guarantees them a strong position in the potentially very different industry of AI.

2. What has the author observed about the profitability of AI so far?

• The author has only seen evidence of huge chip sales for Nvidia (and a few others to a lesser degree) and a bunch of companies that have seen their valuations improve in virtue of wearing an "AI halo," but not much evidence of profitable AI-based businesses outside of the chip supply industry.

3. How does the author characterize the current state of the AI bubble?

• The author suggests that the fact that merely throwing its hat in the AI ring can add hundreds of billions of dollars to Apple's value is a very good indication that we are in a bubble.
• The author compares the AI bubble to other historical bubbles, such as the railroad, telecoms, and Dot.com bubbles, where the financial and competitive structure around the valuable technology was not yet understood.