2. Apple Inc. (NASDAQ:AAPL)
Number of Hedge Fund Holders: 184
Apple Inc. (NASDAQ:AAPL) is a prominent designer and marketer of a diverse range of consumer electronics, including smartphones, personal computers, tablets, and wearables. Cramer discussed Jefferies’ recent downgrade of the stock, which included a mixed assessment.
He discussed that while the analysts expressed a long-term positive view of the company’s unique ability to integrate hardware and software for affordable AI services, they also highlighted that the smartphone hardware needs significant updates for advanced AI, potentially delaying progress until 2026 or 2027. Talking about the analysts’ report, he said:
“Listen to this: ‘We like Apple Intelligence long term as Apple is the only hardware-software integrated player that can leverage proprietary data to offer low-cost, personalized AI services.’
So far so good, right? Then, though, quick pivot to the negative: ‘Smartphone hardware needs rework before being capable of serious AI with likely timeline of 2026/27.’… Jeffries claims the high expectations for the iPhone 16 and 17 are premature and the price-to-earnings multiple is near an all-time high. And you know what? That’s all true.
Apple really is facing some near-term headwinds. The hardware may not be ready, but all this tells me is what everybody else has been saying for weeks now, real issues for the 16. When everyone knows there are real issues, though, you’re going to have a limited window to buy the stock after the expected post-quarter weakness. Unless you believe that nothing good will happen until 2026/27… If you believe that, it means that you think Tim Cook’s authorizing the sale of phones that he knows are substandard. It’s almost as though the entire history of Apple refusing to issue hardware before its time never happened. I mean, it’s like you can’t trust the guy. I say that’s some Joseph Stalin-level revisionist history for you. This downgrade is betting against Apple’s entire culture of excellence. Even when they argue that the valuation is too high, that presumes Apple’s service revenue stream gross margin bonanza will somehow taper off. I don’t buy it.”
Cramer also noted potential benefits from the Chinese government’s economic measures, given the company’s exposure to that market. He mentioned strong sales reported by T-Mobile and said:
“Oh, and by the way, let’s remember [the] Chinese government finally training the bazooka on their flailing economy. It looks like their consumers will get some free money. That’s huge because Apple’s got a ton of exposure to China… With all the talk about the iPhone 16 disappointing, does it matter that T Mobile, one of the biggest sellers of the thing, told me personally that sales are good? I think it should matter… I say own it. Don’t trade it too hard.”
In 2023, the iPhone achieved a significant milestone by becoming the leading smartphone in the market, surpassing Samsung for the first time, according to IDC. Despite this achievement, Apple (NASDAQ:AAPL) still held only 20% of all smartphone shipments last year, which points to considerable room for further growth. The introduction of new AI services and features could substantially increase the iPhone’s appeal and solidify its position in the competitive smartphone market.
The company has shown strong profitability, generating $101 billion in profit from $385 billion in revenue over the past year. In the latest quarter, service sales grew by 14.1%, reaching $24.2 billion, with this category enjoying a much higher gross margin of 74% compared to the 35.3% margin for products.
Columbia Contrarian Core Fund stated the following regarding Apple Inc. (NASDAQ:AAPL) in its Q2 2024 investor letter:
“Apple Inc. (NASDAQ:AAPL) – Despite the stock falling after announcing earnings in late May, Apple regained ground toward the end of the quarter, fueled by the company’s long-awaited AI announcement at its annual Worldwide Developers Conference (WDC). At the conference, the company showcased some of its new AI features powered by Apple Intelligence that would be coming to Apple products and also announced a partnership with ChatGPT. Investors greatly welcomed the announcement of Apple’s AI strategy and the stock surged, passing Microsoft as the world’s most valuable company (although this hallmark wouldn’t last). Beta testing of these new features will be coming later this summer, but the initial promise and excitement looks to be a potential catalyst for an upgrade cycle, as the company looks to persuade users who have had the same smartphone for years to consider an upgrade.”
