Topline
The stock of Apple experienced a decline on Thursday, reaching its lowest closing price in approximately four months. This downturn signals a challenging period for the company, as investors pivot towards Apple’s major technology competitors, who are seemingly better positioned to capitalize on the artificial intelligence boom.
Important Information
On Thursday, Apple’s stock saw its first drop since November 7, aligning with the significant gains seen in the S&P 500 and the tech-heavy Nasdaq indexes. Conversely, the shares of the other five companies in the $1 trillion market capitalization club each rose by 0.7% or more on the same day.
While companies like Microsoft showcase noticeable revenue growth linked to the expanding AI landscape, Apple faces scrutiny over its AI ventures. This scrutiny was underscored by a recent report indicating Apple’s discontinuation of its decade-long electric vehicle project, a venture previously dubbed by Apple CEO Tim Cook as the “mother of all AI projects” back in 2017.
Apple’s shares have declined by 3% in the initial two months of 2024, significantly trailing behind the 7% and 9% gains recorded by the S&P and Nasdaq, respectively.
FactSet data reveals that Apple has consistently delivered lower returns to investors compared to the S&P over 6-month, 12-month, and 2-year periods.
Important Background
Apple has historically been a highly lucrative investment due to its nearly 36% annualized total return over the past two decades, surpassing the S&P’s 10% annual return. In January, Apple relinquished its title as the most valuable company to Microsoft, which dominated the market cap rankings from 2021 to 2023. This shift occurred as Microsoft’s revenue and profit growth significantly outpaced Apple’s, with Apple reporting declining sales and revenue growth in its fiscal year ending in September. Cook hinted at substantial investments in generative AI during a recent shareholder meeting, promising more details on the initiatives in the upcoming months. Analysts anticipate significant AI-related announcements from Apple at the Worldwide Developers Conference in June. Apple’s stock performance is overshadowed by concerns regarding weak iPhone sales, which contributed 58% of the company’s total revenue in the previous quarter, along with the challenges in the AI domain.
Contra
Contrary to popular belief, analysts at Morgan Stanley, led by Erik Woodring, view Apple’s discontinuation of its electric vehicle project as a “net positive.” They argue that this move allows Apple to refocus its resources on AI projects with higher market potential, showcasing the company’s adept cost management strategies.
