2. Apple Inc (NASDAQ:AAPL)
Billionaire Ken Fisher’s Stake: $12,111,286,431
Initial numbers on Apple’s new iPhone are not encouraging. Shipments for Apple Inc (NASDAQ:AAPL) latest iPhone 16 appear to be lower than last year, according to data from UBS Evidence Lab. The lab tracks iPhone availability across 30 regions, and UBS analyst David Vogt noted that delivery wait times for the iPhone 16 Pro Max models are about two weeks shorter than last year in major markets like the U.S., China, and Europe.
“Wait times for the iPhone 16 lineup have been uninspiring since preorders began last Friday,” said UBS analyst David Vogt, in an investor note. “On average, delivery wait times for the Pro Max models are shorter by roughly 2 weeks across the US, China, Germany, Great Britain, France and Japan.”
In the U.S., wait times are 26 days, down from 40 days last year, while in China, they’re just 18 days compared to 36. Despite the upcoming Apple Inc (NASDAQ:AAPL) Intelligence features, initial pre-order sales for the iPhone 16 series are estimated at 37 million units, down 12.7% year-over-year.
Almost every bullish case on Apple Inc (NASDAQ:AAPL) is built around this assumption: millions of people would rush to upgrade their iPhone because of AI features.
However, Apple Inc (NASDAQ:AAPL) has been seeing a long-term decline in mobile carrier upgrade rates, especially postpaid, for several years. This suggests that people are holding onto their devices longer, likely due to economic factors, satisfaction with current technology, or a lack of exciting new features in recent models. This trend isn’t great for Apple Inc (NASDAQ:AAPL). Can Apple Intelligence break this trend? We’ll find out soon.
However, the assumption that we will see a huge upgrade cycle of iPhone just because of AI is big and comes with a lot of risks. Apple Inc (NASDAQ:AAPL) trades at a forward PE multiple of around 35x, well above its 5-year average of nearly 27x. Its expected EPS forward long-term growth rate of 10.39% does not justify its valuation, especially with the iPhone upgrade cycle assumption. Adjusting for this growth results in a forward PEG ratio of 3.33, significantly higher than its 5-year average of 2.38.
Baron Opportunity Fund stated the following regarding Apple Inc. (NASDAQ:AAPL) in its Q2 2024 investor letter:
“This quarter we re-initiated a position in Apple Inc. (NASDAQ:AAPL), a leading technology company known for its innovative consumer electronics products like the iPhone, MacBook, iPad, and Apple Watch. Apple is a leader across its categories and geographies, with a growing installed base that now exceeds 2 billion devices globally. The company’s attached services – including the App Store, iCloud, Apple TV+, Apple Music, and Apple Pay – provide a higher margin, recurring revenue stream that both enhances the value proposition for its hardware products and improves the financial profile. Apple now has well over 1 billion subscribers paying for these services, more than double the number it had just 4 years ago. The increasing services mix has led to healthy operating margin improvement, providing more free cash flow for Apple to reinvest in the business and to distribute to shareholders. Throughout its 48-year history, Apple has successfully navigated and capitalized on major technological shifts, from PCs to mobile to cloud computing. We believe the company’s leading brand and device ecosystem position it to do equally well in the AI age, and this was the driver of our decision to re-invest. “Apple Intelligence” – the AI strategy unveiled at Apple’s recent Worldwide Developer Conference – leverages on[1]device AI and integrations with tools like ChatGPT to enhance user experiences across its ecosystem. The AI suite enables users to create new images, summarize and generate text, and use Siri to perform actions across their mobile applications, all while maintaining user privacy and security. We think Apple Intelligence can drive accelerated product upgrade cycles and higher demand for Apple services. The combination of growth re-acceleration, increasing services contribution, and thoughtful capital allocation should continue driving long-term shareholder value.”
