At the start of April, I wrote that investors looking to buy Apple stock (NASDAQ:AAPL) should wait for the dip.
The reason was that Apple seemed to be waiting on AI.
Since then, the stock is up $8 per share, adding about $130 billion to its market cap. I won’t take credit, even though I was one of the buyers.
Instead, it’s Apple’s own moves that deserve the credit. Their AI strategy is becoming clearer, and investors approve.
The Apple AI Strategy
The strategy will be formally announced at its WorldWide Developer Conference in June. It is built on its strengths in controlling the supply chain and expanding the definition of computing.
Supply chain control means Apple designs its own chips. Taiwan Semiconductor (NYSE:TSM) just fabricates them. The Taiwanese company is getting $6.6 billion from the U.S. government to build a new factory and upgrade a second one in Arizona. That’s about 10% of what TSM itself is putting into the project.
The new M4 chips will have an AI focus, appearing first in the Apple Macintosh. The software they run will be the focus of the WWDC. Apple has bought over 30 small companies (so far) in pursuit of that software.
Some of the devices the software serves may also be new. The Apple Car is out. Instead, in addition to a Watch and Vision Pro, Apple is working on a robot butler. It will be filled with sensors and attachments to perform simple home chores. It’s likely to evolve a personality, too.
These devices are essential for an aging world. Immigrants are doing this work now, but even immigrants cost money. Their supply is not unlimited. Keeping people independent for longer will, in time, lower the costs of aging.
Apple Bears
Every fall in Apple stock brings out Apple bears, as it should.
The argument this time is that government will destroy the company. American and European regulators are both coming after it, especially its profitable, cloud-based services business.
This is not entirely a bad thing. Regulation provides a barrier to entry for other companies, securing Apple’s place on top of technology. Apple has enough money to out-man the regulators with lawyers.
One bear sees Apple forming a “double top” chart pattern at about $200 per share. In the near term, this seems reasonable. It’s going to take time, and capital, for Apple to create a new mass market.
When it does, however, it’s hard to see how any rival can compete with it. Instead, expect a lot of point solutions, like the Alphabet (NASDAQ:GOOGL, NASDAQ, NASDAQ:GOOG) FitBit watch, the Meta Platforms (NASDAQ:META) Quest headset, and whatever silly robot Tesla (NASDAQ:TSLA) is cooking up.
The size of the markets, and the societal implications of these tools working together, make regulation essential. But most regulation isn’t the win-or-lose confrontation ideologues make it out to be. In most cases it consists of oversight and negotiation. That’s another ecosystem Apple will pioneer.
The Bottom Line
Tim Cook has transformed Apple from Steve Jobs’ growth stock into the ultimate blue chip.
Apple stock is no longer a speculation. It’s a stock you accumulate on weakness, accumulate slowly, and hold for years. It’s what International Business Machines (NYSE:IBM) was when I was a kid in the 1960s.
There is a warning there. In the 1970s, IBM put marketers on top and neglected the technology that made them unique. It dictated to customers instead of working alongside them.
The same could happen to Apple as well, after Tim Cook retires. If his successor is a lawyer or a marketer, I may change my tune on Apple stock. It needs to be an engineer focused on solving problems alongside customers. Someone like Microsoft (NASDAQ:MSFT) CEO Satya Nadella. Succession is the biggest risk in Apple stock today.
As of this writing, Dana Blankenhorn had a LONG position in AAPL, MSFT, TSM, and GOOGL. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, available at the Amazon Kindle store. Write him at danablankenhorn@gmail.com, tweet him at @danablankenhorn, or subscribe to his free Substack newsletter.