Apple hits new highs: Why the stock's slump has turned around

Key Concepts

• Apple (AAPL): Stock performance, price targets, iPhone 17 demand, $4 trillion valuation, AI strategy, core business, services, connected home devices, leadership succession.
• Nvidia (NVDA): AI super cycle, valuation, momentum.
• Amazon (AMZN): AWS outage, investor response, cloud market share, growth rate, generative AI, investment and innovation.
• AI Super Cycle: The significant growth and investment driven by artificial intelligence technologies.
• Generative AI: AI capable of creating new content, such as text, images, or code.
• User Experience (UX): The overall experience a user has when interacting with a product or service.
• Ecosystem: A network of interconnected products, services, and users.
• Valuation: The process of determining the current worth of an asset or company.
• Price Target: An analyst's projection of a stock's future price.
• Installed Base: The total number of units of a product that are currently in use.
• Cloud Platforms: Services that provide computing resources (storage, processing power, software) over the internet.
• AWS (Amazon Web Services): Amazon's cloud computing platform.
• Azure: Microsoft's cloud computing platform.
• Google Cloud Platform: Google's cloud computing platform.

Apple: Optimism and Growth Drivers

1. Financial Outlook and Price Targets:

• Goldman Sachs and Wells Fargo have raised their price targets for Apple, anticipating a beat in fiscal fourth-quarter earnings and revenue.
• These upgrades follow Apple's recent achievement of a new record high stock price, the first since December.

2. iPhone 17 Demand and Valuation:

• New reports regarding demand for the iPhone 17 are a significant driver for the stock.
• Apple is on track to reach a $4 trillion valuation, with the timeline for this milestone being a key point of observation.

3. Apple vs. Nvidia: Investment Perspective:

• Argument for Apple: One perspective favors Apple over Nvidia, suggesting that while Nvidia has benefited immensely from the AI super cycle, Apple was previously viewed as a "lagard" (laggard) in this race and has been discounted. The core business of Apple is performing strongly, and this is now being recognized. The preference is for Apple's continued "catch-up" rather than "chasing" Nvidia's momentum.
• Argument for Nvidia: The counter-argument acknowledges Nvidia's strength and its status as a "massively great play" with many investors holding the stock.

4. Core Business Strength and Ecosystem Expansion:

• Apple's core business remains robust.
• Demand for the iPhone 17 upgrade is projected to extend into 2027, with Wall Street showing strong bullish sentiment.
• Connected home devices, potentially manufactured in Vietnam, are expected to contribute to Apple's ecosystem.

5. Stock Performance and Analyst Sentiment:

• Apple's stock is trading in the green, up over 30% in the past six months.
• Recent positive headlines include Counterpoint Research reports, Evercore adding Apple to its "tactical outperform list," and Loop Capital upgrading Apple to a "buy" with a street-high target of $315.

6. iPhone 17 Cycle: Innovation and User Experience:

• The iPhone 17 cycle is off to a "pretty good start" with initially low expectations.
• Key innovation areas include the camera, video capabilities, and advancements in user experience.
• A significant trend is the increasing demand for Pro and Pro Max models, contributing to a healthy product mix.
• Apple's installed base of iPhones continues to grow, complemented by a strong services business.
• The narrative for Apple is one of "continued innovation, product execution."

7. Drivers of Growth Beyond Hardware:

• While hardware upgrades (stronger battery, faster processor) are important, the critical driver is innovation and pushing the user experience forward.
• The iPhone is becoming increasingly vital in both the digital and physical worlds, with use cases in generative AI and visual intelligence via the camera.
• The seamless integration of hardware, software, and services in an "intuitive and secure way" is crucial for growth.
• Even in a mature smartphone market, Apple's ability to "redefine the experience" is seen as foundational for future growth.

8. Apple's AI Strategy and Skepticism:

• Skepticism: Some critics argue that Apple lacks a compelling AI story or strategy, viewing it as a potential existential threat.
• Response: Apple Intelligence is acknowledged to need "a lot of work" but is expected to see significant progress in the coming months.
• Improvements: Siri is anticipated to become a more integral part of the user experience.
• Broader AI Benefits: Generative AI is expected to enhance features related to creativity, photos, video, sharing, and health/fitness.
• User Focus: The ultimate goal is to provide users with a "private and trusted" great experience.
• Future Development: Apple will continue to empower third-party developers and collaborate with partners like OpenAI, Google, and Perplexity to ensure platform success. This is seen as laying the groundwork for iPhone and broader business growth over the next 12-24 months.

9. Leadership and Succession:

• Tim Cook is expected to remain CEO for "several more years."
• He is credited with nurturing strong leaders and empowering developers.
• A potential scenario involves Tim Cook remaining as Executive Chairman for an extended period.
• Deliberate and thoughtful executive succession planning is ongoing, evidenced by the successful CFO transition from Luca Maestri to Kevin Perk.
• The overarching story for Apple is expected to be driven by innovation, product cycles, and user delight.

Amazon: AWS Outage and Cloud Market Dynamics

1. AWS Outage and Investor Response:

• An AWS outage occurred, but investors appeared unconcerned, with Amazon's stock finishing up 1.6%.
• The outage is not expected to alter the long-term outlook for Amazon.

2. Resilience of Cloud Platforms:

• Outages are a known occurrence for cloud platforms, including AWS and its competitors.
• The critical factor is the platform's ability to recover quickly, continue investing, drive user value, and foster innovation, particularly in generative AI.

3. AWS Capacity and Customer Trajectory:

• AWS, like other cloud providers, is currently capacity-constrained.
• Customer feedback indicates a clear trajectory of innovation, aggressive investment, and empowerment of developers and enterprises on the AWS platform.

4. Cloud Market Share Concerns:

• The Issue: Amazon's cloud business (AWS) is the largest, with over $100 billion in revenue. However, its growth rate (high teens) is slower than that of Microsoft's Azure and Google Cloud Platform, which are smaller but growing faster.
• Market Worry: The market is concerned that Amazon might be losing market share to these competitors.
• Counter-Argument: Despite this near-term worry, the cloud market itself is growing at healthy double-digit rates. Amazon's AWS is viewed as a "durable double-digit growth platform" with healthy margins and aggressive investment in innovation.
• Future Outlook: Amazon is seen as capable of creating significant value for customers and shareholders if it can maintain or improve its growth rate. The foundation is being laid for continued strong growth in the next 12-18 months.

Synthesis and Conclusion

The discussion highlights significant optimism surrounding Apple, driven by strong demand for the iPhone 17, continued innovation, and a robust ecosystem. While Apple's AI strategy is still evolving, its core business and user-centric approach are expected to fuel future growth. In contrast, Amazon's AWS experienced an outage, but the market's muted reaction suggests confidence in its long-term resilience and innovation capabilities, despite concerns about market share competition in the rapidly growing cloud sector. The debate between Apple and Nvidia as investment opportunities leans towards Apple for its perceived "catch-up" potential and strong fundamentals, while acknowledging Nvidia's established strength in the AI super cycle. The overall sentiment points to continued innovation and strategic execution as key drivers for both tech giants.