To The Moon

Below is a recap of our webinar, “Can AI Boost Tesla, Amazon, and Apple Earnings?”

Please click here to watch the full webinar replay on Tiger Brokers App.

 Welcome to read>>

• 1) James on 2Q 2024 Earnings Preview: Can AI boost Tesla?

• 2) James on 2Q 2024 Earnings Preview: AI Can Boost AMAZON

$Apple(AAPL)$ will release its latest earnings results on August 1st. It remains my favorite company among the Magnificent Seven stocks.

Despite a year-to-date return of 22%, Apple remains the third worst-performing stock among them. In comparison, Amazon has returned 26%, while Meta and Google returned 40% and 33%, respectively, this year.

Global smartphone shipments saw a 6.5% year-over-year increase during the second quarter. $Apple(AAPL)$ 's growth, however, was only 1.5%. Investors are likely focused on whether the launch of the iPhone 16 in September will significantly boost sales.

Wall Street is still expecting low single-digit year-over-year growth in both revenue and operating income for the June and September quarters. Gross margin and operating margin are expected to dip slightly in the June quarter but remain 1-2 percentage points higher than the same quarter one year ago.

One silver lining for Apple is its service revenue, which now accounts for 26% of its total revenue.

In the 2nd quarter of this year, service revenue reached an all-time high of $23.8 billion. This revenue stream is expected to help offset some of the decline in the product segment.

Investors should not expect strong performance from products in the June and September quarters, as the new iPhone 16 is only scheduled for release at the end of September.

The most significant upside catalyst is $Apple(AAPL)$ Intelligence potentially sparking an upgrade cycle. Currently, 50% of Apple's revenue comes from iPhone sales. The upcoming iPhone 16 launch in September is expected to perform well as Apple seems to have introduced sufficient AI features to encourage users to upgrade their devices..

According to Bloomberg News, Apple recently instructed its suppliers to prepare for a 10% increase in iPhone shipments following the September launch. Many analysts are likely to revise their iPhone shipment targets upward, as previous expectations only foresaw a 5% increase in new iPhone sales.

Apple Intelligence is compatible only with the iPhone 15 Pro, launched last year, and all the latest iPhone models launching this September, as well as Mac and iPad devices using M1 processors or later. This means there is a limited group of iPhone users who can access Apple Intelligence. According to research by Jefferies, they estimate that only about 4% of current iPhone users will have access to Apple Intelligence. Therefore, an upgrade cycle is plausible, especially considering that about 43% of iPhone users are still using iPhone 12 or older models.

The current Analysts' Consensus 12-month Target Price for $Apple(AAPL)$ is $221.31, representing a downside potential of 5.6% relative to yesterday’s closing price of $234.40. Simply put, the main investment thesis for Apple is that Apple Intelligence is driving a new upgrade cycle.

$Apple(AAPL)$ now boasts the largest installed base in history and the longest delayed upgrade cycle—the longest period iPhone users have gone without upgrading their phones. Apple hasn't introduced anything as exciting as Apple Intelligence in a long time, so I reckon we will see a multi-year iPhone upgrade cycle. Apple's stock still appears attractive.

In conclusion, the main investment thesis for $Apple(AAPL)$ is centered around the iPhone upgrade cycle. As for $Tesla Motors(TSLA)$ , I see 2024 as a transition year, with most growth expected to materialize in 2025. However, if Elon Musk continues to make ambitious promises on Twitter or during earnings calls, Tesla's stock price is likely to rise this year.

Regarding $Amazon.com(AMZN)$ , the benefits from cost optimization are tapering off. However, the growth in generative AI might arrive just in time to boost profit margins.

In summary, I believe all three of these stocks are long-term beneficiaries of AI.

All of the Magnificent Seven stocks appear quite expensive at the moment. For instance, Apple has a P/E ratio of 33.8x, Amazon is at 32.6x, and Tesla is at 94.5x. However, investors are willing to apply higher P/E ratios for AI-related stocks.

Currently, AI is poised to kickstart a new earnings growth cycle for these stocks, akin to Nvidia's experience over the past year. So, unless earnings significantly miss expectations for two to three consecutive quarters, I may start to doubt my optimism about AI. Until then, I believe the valuations of these AI stocks are justified.