APPLE’S AI HYPE: A BUBBLE WAITING TO POP?
The tech world is buzzing with excitement over Apple’s recent AI announcements, but is it just a bunch of hot air?
The company’s stock has surged to an all-time high, with some analysts predicting a massive upgrade cycle among users. But is it justified? The valuation is already getting out of control, with some expecting it to reach 30x forward earnings. That’s a level Apple has struggled to sustain in the past.
Some experts are sounding the alarm, saying that the risk-reward is already negative. "I wouldn’t put new money to work here," said David Daglio, chief investment officer at TwinFocus Capital Partners. "The market may be right, but so far, we haven’t seen enough to be sure."
The timing of when Apple’s AI strategy will deliver a meaningful boost to revenue is also unclear. The roll-out of new AI offerings may be slower than investors want, stretching into 2025. And in the meantime, the stock is getting closer to a bubble.
Wall Street expects Apple’s revenue growth to tick back up in the second half of 2024, but that’s still a year away. And in the iPhone segment, revenue is forecast to slip in the last two quarters of 2024, compared to the same period a year earlier.
IS APPLE’S AI STRATEGY A GAME-CHANGER… OR JUST A FAD?
Some analysts are still bullish, predicting that new AI features will drive earnings and propel the stock even higher. But others are more skeptical, saying that Apple’s valuation is already stretched and that there are better opportunities elsewhere.
Nancy Tengler, CEO at Laffer Tengler Investments, has even removed Apple from her best ideas list due to its valuation. "There are more growth visibility in other names, like Microsoft, Amazon, Oracle, Broadcom," she said. "There are other opportunities we’re taking advantage of, and places where valuations aren’t as stretched."
IS APPLE’S AI RALLY JUST THE LATEST EXAMPLE OF MARKET Irrationality?
The tech bubble of the 1990s taught us that even the biggest names can get caught up in market mania. Is Apple’s AI rally just the latest example of investors losing their heads?
Only time will tell. But one thing is certain: the stakes are high, and the rewards are great. But is the risk worth it?
