'Fast Money' talks Apple's recent momentum and if it could be re-rated

Key Concepts:

• Apple's potential stock rerating
• Impact of manufacturing location on Apple's valuation
• iPhone sales performance and growth in China
• Gross margin trends in Europe and Asia
• Services revenue contribution and growth
• Tariff overhang and its effect on Apple's stock
• Google's payment to Apple for Safari search exclusivity
• AI capabilities and their role in service revenue acceleration
• iPhone upgrade cycles and future expectations

Apple's Potential Stock Rerating

• Timothy suggests that Apple's stock might be moving out of its slump, not necessarily due to headlines or the relationship with the White House, but due to the company's performance.
• He highlights Tim Cook's effective management, especially considering Apple's significant manufacturing outside the U.S.
• The recent quarter showed 10% revenue growth, exceeding the street's expectation of 4%. iPhone sales grew by 13.5%, also surpassing expectations.
• Gross margins are increasing, particularly in Europe and Asia.
• Services revenue is a crucial component of the company's value.
• Timothy argues that the market hasn't fully priced in the value of Apple's install base.
• He believes the recent quarter was strong, contributing to the potential rerating.

Tariffs and Discount Removal

• The possibility of removing the discount on Apple's stock due to tariff concerns is discussed.

Counterarguments and Concerns

• An opposing view disagrees with the notion of a rerating, despite acknowledging the good quarter.
• The good quarter is attributed to a pull-forward in China, driven by a government subsidy, which is unlikely to continue in the back half of the year.
• The exemption from tariffs in the initial administration is noted.
• Concerns are raised about the potential impact of regulatory actions on Google's $20 billion payment to Apple for exclusive search on Safari, which significantly contributes to Apple's service margin.
• Services revenue growth is slowing down.
• Apple's AI capabilities are considered lacking, hindering the potential reacceleration of the services business.
• Even potential acquisitions, like Perplexity, are not seen as significantly impactful.
• Expectations for a supercycle upgrade are pushed out to 2026.
• The stock's performance, still below its April 2nd level, is cited as evidence against a rerating.

Services Revenue and Google's Payment

• The importance of Google's payment to Apple for exclusive search on Safari is emphasized as a key driver of Apple's service margin.
• The potential risk to this revenue stream due to regulatory actions is highlighted.

AI Capabilities and Future Growth

• The lack of significant AI capabilities is seen as a hindrance to the reacceleration of Apple's services business.

iPhone Upgrade Cycle

• Expectations for a supercycle upgrade are pushed out to 2026, indicating a longer wait for a significant boost in iPhone sales.

Stock Performance

• The fact that Apple's stock is still below its April 2nd level is used as an argument against the idea that it has rerated or significantly reduced risk related to tariffs.

Conclusion

The discussion revolves around whether Apple's stock is undergoing a deserved rerating. While some argue that strong quarterly performance, growing margins, and the value of the install base support this view, others express concerns about the sustainability of growth in China, potential risks to service revenue from regulatory actions affecting Google's payments, and the company's perceived lack of progress in AI. The impact of tariffs and the timing of the next iPhone supercycle also play a significant role in the debate.