00:00For more on Apple, we're joined by Craig Moffitt, Moffitt Nathanson, founder, founding partner and senior research analyst.
00:07He has a neutral rating on the stock as well with a price target of $225.
00:12Craig, what do you see in the earnings? Anything that might move you?
00:16Well, look, the earnings were actually quite good.
00:20There weren't a lot of surprises in them, really.
00:22There was actually a positive surprise in the services revenue growth coming in at about 13 percent.
00:30The market and we had been expecting 11 to 12.
00:33It may not sound like a big difference, but there were some real risks to the downside there that clearly didn't materialize.
00:40So overall, these are these are pretty impressive results.
00:44The reason we're stuck on the sidelines here is simply valuation.
00:47I think you're seeing that in the way the stock is trading.
00:50You're talking about a stock that that came into earnings on at something like 40 plus times P.E. multiple going into yesterday's report.
01:03Even though you're getting faster earnings growth, call it 11 percent now, you're still talking about a company that's trading in the mid to high 30s in P.E. multiple and growing much more slowly than its mag seven peers.
01:18And so it's just hard to see how over time it can compound as quickly as its peers, even though it's actually, again, you know, we're quite positive about the prospects of the company.
01:31I just think you're being asked to pay a lot for a relatively modest growth rate.
01:38Craig, I was speaking to Dan Ives of WebBush, who is ever the Apple bull, who said that it's his expectation that Apple would partner up with Alphabet and start offering a Google Gemini service on its iPhone to supplement the lack of A.I. that it has.
01:53Would that be a game changer for Apple?
01:55Well, no, no, no, it wouldn't.
01:58And to some extent, that's precisely the point.
02:01Right. Let's let's step back a second.
02:04Remember that the reason that people got so enthusiastic about Apple coming out of last year's worldwide development developer conference, when the hype around A.I. was at its peak for Apple.
02:17It was because this was going to drive an enormous upgrade cycle, and that upgrade cycle would mean that everybody had to get a new device in order to deliver the functionality of an agentic A.I.
02:29that was going to be delivered by Apple on the device.
02:32That narrative has largely gone away.
02:34And while we're seeing a solid iPhone cycle this time, it's not driven by A.I.
02:40It's just driven by the fact that these are good devices.
02:43If you do something with Gemini, you do something with with ChatGPT and it's in the cloud, that solves the problem to some degree.
02:53But it doesn't drive an upgrade cycle.
02:55You can do that today with any device.
02:57So so you and what's embedded in the stock price is this much more rapid refresh rate or replacement rate of devices.
03:06It's harder to see what's going to make that happen.
03:09And again, it's not that's not an indictment of Apple.
03:12It's simply an indictment of of the the enthusiasm and expectations that probably got ahead of the reality a year or so ago.
03:20You saw Apple trade sideways and while it's done pretty well for the last call it month and a half or so, it's still lagging behind both the market overall and the rest of the mag seven precisely because expectations had gotten so aggressive.
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