Apple, Inc. AAPL shares rallied on Tuesday, a bit late after the company’s Worldwide Developers Conference keynote presentation, but a bullish analyst said she was left unimpressed by the announcements.
Nothing Changes: Following Tim Cook’s keynote speech, the consensus estimates remain unchanged, said Needham analyst Laura Martin in an interview with Yahoo Finance.
The analyst also suggested that much of the presentation lacked substance. “They just talked for 65 minutes about new colors and emojis and capabilities and I felt like a Snap CEO talking like ‘we’re gonna target 22-year olds,'” she said, adding that an average smartphone owner is in their forties.
Apple relegating AI to the last 30 minutes was “weird,” especially as Wall Street is focused only on learning about generative AI, Martin said. “This year, we’re projecting 1% revenue growth, which is really uninteresting as a stock, unless they’re gonna use generative AI to drive an iPhone replacement cycle, and iPhones are over 50% of their total revenue,” she said.
“I just didn’t hear that yesterday.”
Martin said she hasn’t altered her estimates, given that the company’s revenue is expected to grow only at 1% in the near term. Since the company issues upgrade updates once a year, it could mean more waiting time. “We didn’t like what they said yesterday [Monday]. We’re gonna wait a year to figure out whether we like what they say next year about gen AI,” she said.
See Also: Everything You Need to Know About Apple Stock
Near-Sighted Strategy: Martin noted that a lot of companies including Alphabet, Amazon and Microsoft are building large-language models for gen AI as they can reap rewards in the form of a 10% tithe on every dollar earned in their clouds on gen AI. The returns on capital for these companies may be falling this year and probably the next but ultimately they are going to dominate the world. she said.
Apple, however, hasn’t raised the capex guidance at all, Martin said. The $100 billion stock buyback the company announced recently is sending the message that it has “nothing better to do” with its money than return to its shareholders, she added.
While sales climb an anemic 1%, earnings per share can rise 8% due to the stock buyback, which will put a floor under the shares, the analyst said.
“So as a shareholder, you want to be in Apple this year… But in four years, you don’t wanna be anywhere near the stock ‘cos it’s gonna be in a strategic box,” Martin said. “Whereas these other companies that have already spent the money four years from now are gonna be sort of riding the big wave of generative AI invasion.”
Martin was bullish on the prospects of AI. “Generative AI is here to stay and….a lot of companies are making a point of how they’re using Generative I today, not tomorrow, not when they launch their next product in September or December, like Apple said,” the analyst said. “They are using generative AI today and a lot of my companies are saying they’re going to cut cost 20%-30% in areas where they’re using generative AI to replace people like in services or chatbots.”
Apple shares soared 7.26% on Tuesday before ending at an all-time high of $207.15, according to Benzinga Pro data. The stock has gained about 8% year-to-date.
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Image courtesy: Apple
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