Apple (AAPL) shares initially fell but are now rising as investors digest the company's AI announcement. Antoine Choucairn, tech infrastructure analyst at New Street Research, said on Market Domination:
Chikaiban said that while there were some “boring” moments at Apple's Worldwide Developers Conference (WWDC) on Monday, “it was exciting because I think they really expressed the potential of generative AI at the core of the operating system.” However, he doubted that the technology alone would be enough to jumpstart the product cycle, explaining, “I'm not convinced that on-device AI will enable groundbreaking user experiences because the hardware is not groundbreaking. GPT-4 is easily available on most iPhones through the ChatGPT app, which raises the question: do users really need to upgrade to use the technology? So far, the answer is 'no,'” he explained.
Either way, he believes the company's shares are “fairly valued,” especially with the services sector at an all-time high.
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This post was written by Melanie Leal
Video Transcript
As analysts welcome Apple's AI announcement, let's dive deeper into the movement we're seeing.
It's a little mixed up.
It took them a while to get excited.
Shares initially tumbled after Monday's keynote but then surged to record highs.
The next day we'll be joined by Antoine Kon, technology infrastructure analyst at New Street Research.
I'm glad to see you again.
Well, what do you make of the delayed stock price reaction to Apple's announcement?
yes.
Hello, Julie.
Thank you so much for inviting me.
Yeah, I think Monday's keynote was both boring and inspiring at the same time, because on the one hand it showed exactly what the iPhone experience should be like if you use Siri in general, combining Uber rides with boarding passes to plan things and input addresses into your calendar.
All of these experiences would be frustrating at best today, but suddenly during Monday's keynote they seemed so polished and so pure, it's a kind of deja vu, you know?
On the one hand, I was excited because I thought it really captured the potential of generative AI at the core of the operating system, which has the power to redefine how we interact with technology. Content creation tools now take into account context, with instructions entered as natural language, and how they influence how we interact with users, their creativity, their content generation, and their task execution.
Hmm, that probably requires minimal explanation.
Well, that's why we had mixed thoughts when we watched the keynote on Monday.
Yes, I think the stock price reaction originally reflected that.
Well, I think it also speaks to the fact that Apple is very committed to all of this.
And whether that can drive the product cycle, I think, is still an open question.
This is probably what's driving the stock price up right now and giving it confidence.
Well, the market is becoming more confident in the fact that it can drive product cycles.
Maybe that's what we're seeing in stock prices right now.
But do you think, Antoine, it's too early to say whether that will drive the product cycle?
Yes, I mean, I don't really have a good answer because on the one hand, Apple intelligence is, um, you know, only compatible with products based on the A 17 Pro and M One chips and above.
So that probably represents about 10% of Apple's active installed base.
So if a feature is well-received, it may encourage substitution since only 10% are compatible.
But on the other hand, it's also a huge gift, because right now, I'm not convinced that on-device AI is going to dramatically change the user experience.
Well, because the hardware simply isn't game-changing.
Well, in areas like on-cell phone computing, we don't really see an inflection point.
Yes, of course it's growing, but there's no inflection point.
Since GP-T4 is easily available on most iPhones through the Chat and Chat GP-T app, the question remains: do users really need to upgrade to use the technology?
Well, there isn't really an answer right now.
So we'll have to wait and see if the integration with the operating system will truly be a game-changing experience.
So Antoine put it all together.
What do you think that means for further increases?
Apple stock?
yes.
So, looking back at all of this and looking at Apple stock, I think the stock is fairly valued.
Well, you know, the reality is that growth has peaked for most mobile phones.
The iPhone peaked in December 2021 and then in September 2022, and as you know, the share increase from 2029 to 2022 was driven by payments to Huawei in China.
Well, the move to in-house silicon is now largely behind schedule at Macron.
And the iPad peaked in December 2020 due to a growing installed base.
Now it's slower and has longer update cycles.
And then looking at services, services are hitting an all-time high, driven by the App Store, which is driven by licensing and the deal with Google, and this set of businesses as a whole is likely to continue to grow at double digits, but again, we see limited room for acceleration here.
That means Apple likely has a mid-to-high single-digit growth outlook.
Well, this is trading at a very significant premium to the S and P, the SNP stocks, and it has a similar growth profile.
As I said, we have a little bit more to talk about in terms of AI-driven product cycles.
Put all this together and you can see why we are neutral on the name.
Antoine, you are aware, I want to tell you that Apple's keynote was music to the arms' ears.
Why Antoine?
yes.
Well, actually, if you think about the impact of this event on the entire technology infrastructure supply chain, there's ARM, but I mean, Apple is going to have to pay Open AI to deploy GP T or O in the United States.
And Apple estimates that it will cost them about $10 per device per year.
So in the short term, if you have just 10% of the installed base of 2 billion devices, that's 2 billion devices per year, totaling $2 billion per year.
Hmm, but in the long run, if the entire installed base started using such a model extensively, it would cost Apple probably $20 billion across its installed base of 2 billion devices.
And if they want access to enough computing to support such a large installed base, Microsoft itself would need to buy a ton of GP US.
That means GP US will likely need to spend tens of billions of dollars.
First, before we talk about ARM, let me say something that really reinforces our positive view of NVIDIA.
And for ARM, there's the model part, and the technology is driven by on-device inference, so there will be an increase in the ARM-based silicon content in the phone.
Well, this is obviously a plus for ARM and also a plus for NVDR, as you know, the grey CPU called NVD I is going to be marketed in collaboration with Blackwell, but it's already been researched in collaboration with Hopper, and it's also based on the ARM instructions of the architecture.
So, that's a plus for Arm Antoine.
That's a very interesting perspective. Thank you for your time.
Thank you so much for joining us today.
thank you.
