Apple stock hits all-time high with new iPhone release

Here's a detailed summary of the YouTube video transcript:

Key Concepts

• Apple's Resurgence: The video discusses Apple's recent strong performance, driven by iPhone sales and a new adoption cycle, independent of AI hype.
• Apple's Financial Strength: Apple is characterized as the "U.S. Treasury bond equivalent" in the equity market due to its exceptional balance sheet, free cash flow, and large, aging install base.
• "Splendid Six" Portfolio: A curated list of top-tier technology stocks (Apple, Microsoft, NVIDIA, Google, Amazon, Meta) favored for their growth profiles and reasonable valuations, excluding Tesla due to its high valuation.
• Enterprise Software and AI Threat: The discussion addresses the concern that AI might diminish the value of enterprise software companies, with Salesforce being a case study.
• Growth Industrials: The segment highlights specific growth opportunities within the industrial sector, specifically Quanta and Republic Services.
• Republic Services' Renewables Business: A key differentiator for Republic Services is its rapidly growing renewables business in natural gas, particularly relevant for data centers.

Apple's Strong Performance and Future Outlook

Charles opens by noting Apple's current strong performance, with the iPhone 17 selling briskly in the US and China, and positive analyst sentiment from firms like Loop Capital. He questions if this is what Jason Ware, Chief Investment Officer at Financial Group Cheer, anticipated.

Jason Ware confirms this anticipation, stating that Apple's return to market favor should not be surprising. He describes Apple as the "U.S. Treasury bond equivalent in the equity market" due to its "incredible balance sheet" and "incredible free cash flow." A significant driver for future revenue growth is Apple's "sticky and install base of iPhones," with an estimated "three to 400 million" devices being older than four years and due for an upgrade. The iPhone 17, with its "biggest design upgrade in the last few years," is expected to lead this upgrade cycle. Ware also points to Apple's "pretty strong business and services and apps" as an additional revenue stream.

Charles then raises the point that Apple has the "luxury to be late" in adopting new technologies like AI, often taking a hit but eventually recovering. Ware agrees, asserting that Apple has a "floor to Apple's valuation" that is higher than the average S&P 500 stock due to its "quality fundamentals." He notes Apple is trading at "around 35 times trailing, 31 to 32 times forward earnings," and believes it shouldn't trade much lower given its "stability and optionality" and "huge cash flow profile."

The "Splendid Six" and Valuation Considerations

Charles introduces the concept of the "Splendid Six" portfolio, analogous to Ted Williams' "Splendid Splinter," which includes Apple, Microsoft, NVIDIA, Google, Amazon, and Meta. He asks if these are stocks one "holds on to."

Ware confirms these are "staples in the portfolio," formerly referred to as "Tech Generals." He clarifies that the "Splendid Six" is essentially the "MAG7 minus Tesla." The exclusion of Tesla is attributed to its "valuation too expensive for us, 150 times earnings," making it difficult to justify from a valuation perspective. The other stocks in the "Splendid Six" are trading between "22 times forward earnings, and 30 times forward earnings," which Ware considers "very reasonable for the growth profiles" that are projected to be "somewhere between 15-20% over the next 12 months."

Enterprise Software and the AI Threat: The Case of Salesforce

The discussion shifts to Salesforce, a stock Ware's firm has been looking to buy or has bought. Charles notes that Salesforce has been "getting hammered pretty good" but is showing a "good spike right now, lifting off the 200 day," with "a lot of room to the upside." The key question, however, is whether Salesforce can "survive the threat of AI."

Ware acknowledges this as the "key question" and the reason enterprise software stocks have underperformed this year, with Salesforce being a prime example. He explains the concern that AI might cause enterprise software companies to "shrink." While broadly agreeing that software companies "don't have as wide moates as they did two or three five years ago," Ware identifies "quality names within that complex like Salesforce" that possess a "really strong install base that's hard to up end and replicate." Furthermore, Salesforce is actively "moving towards AI" and focusing on the "enterprise" market, which Ware believes is "the future over next three, five years and leading the way." Charles adds that "when Benioff gets it right that stock comes back every single time."

Growth Industrials: Quanta and Republic Services

Before concluding, Charles asks about growth industrials, noting that industrials had a "huge lead" for the first five months of the year but have since slowed. He specifically mentions Quanta and Republic Services as companies Ware likes within this sector.

Charles expresses curiosity about Republic Services, describing it as seemingly out of place with other growth names, like a character from "Sesame Street." Ware acknowledges it's a "very boring company" but explains its inclusion. Republic Services operates in a "three horse race" with other large players like Waste Management, presenting "huge M&A role of opportunity." The "kicker" for Republic Services, however, is its "renewables business in natural gas that is really growing quite quickly" and where they are the "leader in that space." This provides a "stable business," a "bull market in garbage," and "a couple growth kickers as well over next five years." Ware concludes by stating that the "nat gas story is under told with respect to data centers and all electricity dema[nd]."