To The Moon

Discussing Why we should Bullish on Apple: Apple Benefits from the Contention of Others

Summary:

• AI and Apple: While AI advances impact tech firms, Apple remains largely unaffected, focusing on hardware with strong market demand.

• Upgrade Cycle: Anticipated substantial iPhone upgrades may drive users of older models to upgrade, potentially boosting Apple's revenue and net profit.

• Competitive Edge: Apple's user experience and service business, including content and financial services, provide a strong moat. The introduction of Vision Pro signifies ongoing innovation.

• Valuation and Support: With a reasonable valuation and a substantial stock buyback plan, Apple appears well-positioned in the market.

• Investment Perspective: The author is optimistic about Apple's long-term potential despite the stock's current stability, preferring to hold shares and roll sell calls.

As competition in the field of artificial intelligence (AI) becomes increasingly fierce, Apple Inc. seems to be able to stand aloof, unaffected by it. Today, I want to discuss Apple's competitive advantage in the wave of AI and talk about why I'm optimistic about it.

The Smartphone Upgrade Trend Benefits $Apple(AAPL)$

Although the development of AI technology has had a profound impact on many technology companies, Apple's business has not been directly affected by something like ChatGPT. Apple's main business is still hardware products, including the iPhone, iPad, Mac, etc., which continue to maintain strong market demand. The hardware business is large in scale but has lower growth and profit margins. In contrast, the service business is growing rapidly and has higher profit margins, which leads to Apple's overall profit margin being relatively high and growth being moderate.

In the past few years, the growth of Apple's hardware business revenue has slowed down, largely due to the slow iPhone upgrade cycle. The recent updates of the iPhone have been very incremental, but many people expect next year's updates to be more substantial, including longer battery life, support for spatial videos, thinner bezels, better displays, etc. Coupled with the increasing computational demands of apps, this should also drive the need for upgrades. In my view, this should be enough to persuade many users of the iPhone 10, 11, 12, or 13 to upgrade to the iPhone 16, and the wave of upgrades will drive the growth of Apple's revenue and net profit.

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$Apple(AAPL)$ 's Competitive Moat

Apple's market position benefits from several key factors:

• User Experience Advantage: Apple's products hold an irreplaceable position in the hearts of users, which means that no matter how fierce the competition in AI, users will still access these services through Apple's devices. A simple example is that GOOG pays AAPL over 20 billion US dollars every year as the default search engine for the Safari browser. Looking forward, we expect AAPL to further leverage this advantage.

• Service Business: Apple's content suite and financial services segment have a significant distribution advantage. Apple's service business is built on its hardware ecosystem, including the App Store, financial services, content provision, productivity applications, etc. Apple's content-focused approach to its service business is wise; the company does not compete in any knowledge or functional applications. That is to say, no matter which company eventually wins the AI arms race, it will need to download apps from Apple's App Store and pay the 'Apple tax'.

• Introduction of Vision Pro: The recent introduction of Apple's Vision Pro demonstrates the company's ambition in the field of future computing. This not only helps Apple maintain its long-term position in consumer hardware but also shows the company's continued innovation in key areas. Strong hardware capabilities are very important for the aforementioned network advantages and the profitability of the service sector.

AAPL

$Apple(AAPL)$ 's Reasonable Valuation and Buyback Plan

Returning to the value of Apple's stock itself, Apple's valuation is not cheap; its price-to-sales ratio is 7.6 times, and the price-to-earnings ratio is 29 times. However, compared with its historical valuation and other large technology companies in the industry, it appears more reasonable. In addition, Apple has 110 billion US dollars for stock buybacks, which provide support for the stock.

In summary, I believe that Apple may be able to win the final victory in this AI competition. In the long run, I think Apple is still worth investing in. However, Apple's stock price is too stable at present, and the cost-effectiveness of selling puts is too low. I plan to continue rolling sell calls while holding the common stock.

Disclaimer: The above content represents the personal views of the poster and does not constitute any investment advice from this platform.

(Note: Some parts of the text seem to be corrupted or contain placeholder symbols that do not translate well, so they have been omitted from the translation.)

Source:https://seekingalpha.com/article/4696148-apple-relatively-immune-from-ai-disruption