Apple could have its own 'ChatGPT moment,' expert explains

Key Concepts

• Profit Margins: Currently at record levels and expanding, driven by real demand rather than solely cost-cutting.
• AI Rotation & “Wall of Worry”: A temporary pullback in AI stocks presents a buying opportunity, fueled by underlying strength and investor apprehension.
• NVIDIA’s Importance: NVIDIA’s earnings report is crucial for confirming demand and overcoming market skepticism.
• AI Revenue Translation: AI is moving beyond productivity gains to generate tangible revenue, as demonstrated by Walmart’s Sparkly initiative.
• Secular Rally: The current market rally, originating in 2009, is experiencing a new phase driven by AI (the “ChatGPT leg”).
• Apple’s AI Potential: Apple is poised for an “AI moment” with increased R&D, inventory, and a forthcoming product announcement.
• Prediction Markets: CME Group is establishing a regulated platform for prediction markets, mirroring its success with futures contracts.

Market Strength & AI’s Impact on Earnings

The discussion centers on the current bullish market backdrop, characterized by record-high and expanding profit margins. Jessica Inskipment argues that this expansion isn’t solely attributable to cost-cutting measures. Analysis of earnings revisions versus sales reveals upward revisions for sales, indicating genuine demand is driving the profit growth. This suggests the bullish trend can continue. A key observation is the current “rotation away from AI stocks” creating a “wall of worry,” which Inskipment views as a positive, offering a buying opportunity for these stocks. She highlights that this worry isn’t indicative of “irrational exuberance,” a characteristic of past bubbles.

NVIDIA as a Market Barometer

NVIDIA’s upcoming earnings report is identified as a critical event. The company has a strong track record, beating earnings expectations in 21 out of 22 quarters (91%) and the last four consecutive reports. However, Inskipment emphasizes that NVIDIA needs to deliver substantial numbers and positive guidance to further propel the stock. The report will provide insight into the actual demand for AI-related products. The market is currently waiting for NVIDIA to overcome the existing “wall of worry.”

AI’s Transition to Revenue Generation

Inskipment draws a parallel to the dot-com bubble, noting that initial valuations were based on metrics like website “eyeballs.” The companies that ultimately succeeded – Google and Amazon – were those that translated internet usage into actual revenue through targeted advertising. She argues that AI is following a similar trajectory, moving beyond productivity enhancements to generate real revenue. As an example, she cites Walmart’s “Sparkly” initiative as a demonstration of AI translating into increased revenue. This transition to revenue generation is a significant bullish catalyst.

Apple’s Potential “AI Moment”

The conversation shifts to Apple, with Inskipment predicting an “AI moment” for the company. She points to increases in Apple’s inventory and R&D spending, levels not seen since 2017 (memory upgrade) and 2020, as indicators of impending new iPhone sales. The upcoming “Apple Experience” event on March 4th is considered crucial, as the marketing and release of AI models are vital, referencing the contrast between the launches of Google’s Bard and OpenAI’s ChatGPT. A fully integrated system, potentially with new MacBooks featuring M5 Pro and Max chips, would be particularly impactful.

CME & Prediction Markets

The discussion briefly touches on the growing field of prediction markets. CME Group is establishing a regulated platform for these markets, leveraging its experience with futures contracts. Previously, prediction markets lacked a centralized, regulated location. CME is replicating its successful futures model in this new area.

Logical Connections & Synthesis

The conversation flows logically from a broad assessment of market strength to a focused examination of AI’s impact on earnings and specific companies. The discussion highlights the importance of translating AI’s productivity gains into tangible revenue, using Walmart’s Sparkly initiative as a case study. NVIDIA is positioned as a key indicator of demand, while Apple is presented as a company poised to capitalize on the AI wave. The inclusion of CME’s entry into prediction markets demonstrates a broader trend of market innovation and regulation.

Main Takeaway: Despite current market anxieties and a temporary pullback in AI stocks, underlying fundamentals remain strong. Expanding profit margins, driven by real demand, and the increasing translation of AI into revenue suggest a continued bullish outlook. NVIDIA’s earnings report and Apple’s upcoming announcements are key events to watch.