The 'Fast Money' traders debate if Apple has its mojo back

Key Concepts

• Apple's "mojo" (market leadership and innovation)
• AI strategy and its impact on Apple's future
• China iPhone sales and tariff-related concerns
• Valuation of Apple relative to the S&P 500
• "Sticky business" and the Apple ecosystem
• Relative performance of Apple compared to other tech giants (Nvidia, Palantir, MAG7)
• AI pricing and its absence in Apple's stock
• Geopolitical handling by Tim Cook
• iPhone refresh cycle and its impact on sales
• "Dead money" stock and potential for future growth

Apple's "Mojo" and AI Strategy

The discussion begins with whether Apple has regained its "mojo," referencing the movie Goldmember where the character loses his mojo. While Apple has met or exceeded expectations in service revenue and iPhone sales in China, the primary concern is the lack of a clear AI strategy. Until this question is answered, it's difficult to definitively say Apple has fully recovered its market leadership and can reach new all-time highs.

China, Tariffs, and Geopolitics

The impact of China iPhone sales and tariff-related issues is acknowledged. Apple's efforts to "embrace" and "ingratiate" itself with the administration, potentially involving a $100 billion commitment, are seen as a step in the right direction. However, it's considered too early to declare Apple completely out of the woods, especially in re-establishing itself as a leader in the tech space. Tim Cook is praised for his "masterclass" in handling geopolitics.

Valuation and Relative Performance

Apple's valuation is discussed, noting it trades around 31 times earnings, which is richer than the S&P 500. While its adjusted EPS growth (around 9% year-on-year) and free cash flow yield (better than 3% and growing) are solid, its relative performance compared to the S&P 500 (potentially 12% lower year-on-year) makes it less exciting on a relative basis.

The Apple Ecosystem and "Sticky Business"

Apple's "sticky business" model, where users are deeply embedded in the Apple ecosystem and unlikely to switch, is highlighted as a factor deserving a premium valuation. This "moat" provides a competitive advantage.

Relative Performance Compared to Tech Giants

Apple's stock performance is compared to other tech giants like Nvidia and Palantir. It's noted that Apple has been a "non-participating stock" and a "lower beta stock," meaning it's more defensive but hasn't kept pace with the high-growth names driving the tech sector's performance. The discussion suggests fading the recent move upwards, as it may be a "catch-up trade" rather than a fundamental shift. The three-year anniversary of Apple's peak relative performance to the S&P 500 tech sector (September 2022) is mentioned, raising questions about whether Apple can ever reach a new relative high.

AI Pricing and Market Sentiment

The argument is made that there is "no AI priced into Apple." While other tech companies, including Google, Meta, and Amazon (the MAG7), have benefited from the AI mania, Apple has underperformed even these stocks. The speaker believes that Apple should rally if the market rallies, regardless of its AI exposure.

iPhone Refresh Cycle and Future Growth

The iPhone refresh cycle is seen as a positive factor driving sales, even if it's not directly related to AI. The speaker expresses a positive outlook on Apple, citing its underperformance and the fact that it has been "dead money" for three years, suggesting potential for future growth. The speaker also states they "sleep well with the stock."

Conclusion

The discussion presents a mixed view of Apple. While the company has shown positive signs in terms of service revenue, iPhone sales in China, and handling geopolitical challenges, concerns remain about its AI strategy and relative valuation. The "sticky business" model and potential for growth after a period of underperformance are seen as positive factors. The overall sentiment suggests cautious optimism, with a need for Apple to address its AI strategy to fully regain its market leadership.