Is generative AI killing Apple?

March 28, 2023

Apple is a great company, but not a great investment at this moment. Apple has lost 15% in market capitalization ($460 billion) in the last three months. Apple is perceived as lagging in the AI race. Although Apple has not cashed in the AI boom, it may nonetheless pay a price in an AI bust or overdue AI correction. Cashing in some Apple stock profits is not necessarily a bad idea. 

Apple is trading today at around $170 per share for a market capitalization of $2.64 trillion. This is down from its peak of almost $200 per share and a market cap of over $3.1 trillion. Although Apple is a great company, and will most likely remain a great company for decades to come, at its current valuation and momentum, Apple is not great investment at this very moment. 

In this article

1. Good Company vs. Good Investment
2. Apple's "struggles" with Generative AI
3. To bite or not to bite. Is this a good time to buy Apple?

1. Good Company vs. Good Investment

A good company is one that can operate profitably over an extended period of time. Apple is not only a good company, but a great one. Apple is a winner and holds an privileged position in the smartphone and personal computer industry. Apple can be expected to operate profitably for the foreseeable future. Apple also holds major cash reserves that will allow it to withstand any major economic storm. 

A good company, however, is not necessarily a good investment. It all depends on timing and pricing. Apple is not only a good company, but rather a great company. However, Apple is not a great investment at this moment at its current price. Apple is under a strong bearish trend, depreciating in value even in the midst of the AI boom that is putting tremendous bullish pressure in the entire market. When and if Apple shares sheds an additional 20% - 30% in price, it will be a great time to dig in and buy. At this moment, it is better to hold, and maybe sell if able to cash in some profits.

A good investment is one that is expected to appreciate over time. A great investment is one expected to appreciate greatly in a relatively short time. Even a great company like Apple may be a poor investment at a specific point in time (negative momentum, bearish, or downward trend) and a specific price (too high). It all depends on the timing and pricing. 

Think about a car for example. Let's say a 2024 Lexus. It may be a great car, but it is not an investment--or it would be a lousy one--because it can be expected to depreciate 50% in three years. Apple is a great company, but it may depreciate over the next five years. 

Timing is everything. Warren Buffett and Berkshire Hathaway bought about 1 billion shares of Apple between 2016 and 2018 when shares traded at an average price of $40. Even at today's 15% discount, Berkshire is up by over 425%, having more than quadrupled every dollar in less than 8 years. It is highly unlikely that Apple will quadruple again in the next 8 years.

2. Apple's "struggles" with Generative AI.

Apple has invested heavily in AI in the past decade. Apple can be thought of as a pioneer in the integration of AI through Siri and other iphone features such as text prediction and app suggestions. However, Apple is not associated with AI, especially not associated with generative AI such as ChatGPT or Google bar. Consequently, Apple is not an AI stock darling.

While AI darlings such as NVIDIA, Microsoft, Meta, and others have blossomed in the AI boom, Apple has languished and recently began to plunge. Apple is down 15% in the last three months despite everything else seemingly going up. 

Apple does not seem poised to lead the generative AI arms race, at least not for now. Apple seems to prefer leading from behind. Chances are that under Tim Cook, Apple will play AI very safely and conservatively without any major risks. This means that Apple will avoid major blunders, but will also miss major rewards. 

The AI boom will continue strong in the next five years. This will create new winners and new losers. Apple will not be a loser, but it is questionable if Apple can become an AI superstar overnight. Chances are that Apple will implement a cautious AI strategy, innovating from behind. Apple will let others set the direction, and then innovate a better path to get there. 

AI is here to stay, and Apple knows that it does not need to rush. Fools rush in. Apple is not a fool. Apple will carefully study market direction to gradually introduce remarkable innovation. Improving something that already exists, making it a safer, stylysh, and superior status symbol is part of Apple's trademark. Figuring out how to apply that model to AI is Apple's #1 priority and fear. 

3. To bite or not to bite. Is this a good time to buy Apple stock?

Apple is selling at 15% off, trading today at about $170 versus its peak price of about $200 in December of 2023, just three months ago. On one hand, 15% off is a good discount for a premium quality product. On the other hand, a clearance sale may underway and the price may continue dropping. 

The future has not been created yet and is uncertain by nature. If and when Apple sheds another 20%, it may be a good time to begin buying shares weekly. Apple should be on everyone's radar. 

The AI revolution is just beginning. Apple will continue playing and innovating in the AI space like all other major technology companies. It would be a mistake to write off Apple. It's a 48 year old company still at its peak or very close to it. China and AI are two big clouds on Apple's horizon. Apple will weather practically any storm. However, Apple's share price may have to come down at least another 20% for it to become a buy recommendation. 

As with everything related to AI, there will be many surprises, and the best is yet to come. Stay tuned.

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