00:00I actually want to go back to something that you wrote last September when you downgraded Apple
00:04stock and you kind of focus on the idea that you were initially excited about Apple's role in the
00:10AI ecosystem and a potential major upgrade cycle. But you then said it had become clear that those
00:16are not coming to fruition in the near term. When you look at the changing of the guard,
00:20which, of course, doesn't come until September, are you a little bit more hopeful that we might
00:24get there soon? I think what's happened since then is Apple has gotten into a very good
00:32iPhone upgrade cycle, which at the end of the day is the most important thing for driving
00:36their results. And it gives Mr. Cook an opportunity to retire on top. He has he's delivering great
00:44results, record results, probably at least a couple more quarters of that. So he gets to retire on top
00:50and hand the reins over to the next series of leaders. And importantly, Apple picked a hardware
00:59lead, which is a very strong indication that the next era of development for Apple is still around
01:06hardware. And there's some opportunities for novel hardware around folding phones and glasses and AI
01:13pins and maybe return to a VR headset, a revisit of the Vision Pro, where they're going to let
01:21everybody else build at the AI application layer and eventually embrace the winner as they usually do.
01:28So Apple is in good shape. That's why Mr. Cook can retire. He's leaving a company in a stable
01:36situation with growth to Mr. Ternus. So you see the potential for Apple to maintain
01:43at least certainly in the smartphone sector, what is basically a dominant position. But more
01:47importantly, Gil, the idea that whatever the new hardware is for the AI generation,
01:52that Apple will also be a leader in that.
01:56That's right. Apple's users consume AI directly from Apple through some of the applications that
02:03Apple's already deployed. But right now they mostly consume it from the frontier model providers.
02:09So either we use ChatGPT or a lot of Claude now or even Gemini, even on an iPhone device or
02:16Apple devices.
02:17And they're very comfortable with that because the consumers are still buying their devices every year at a higher price
02:25point.
02:26And right now they're going through a great upgrade cycle.
02:29And they have the folding phone teed up, which will increase the ASPs further.
02:35So they're very comfortable not participating in this multi-company race that's very CapEx intensive to the frontier model of
02:45AI.
02:46They'll let that play out. And once it shakes out the two or three models, maybe then they can incorporate
02:52that more into their devices.
02:54For now, really, the big fix they need to do is Siri. They need to make sure Siri is more
03:00performative to the level that we're now expecting when we interact with AI.
03:06Once they do that, they can sit back and let everybody else spend on CapEx.
03:10Everybody else can compete. At the end of the day, users will use an iPhone or a Mac to participate
03:16in that.
03:16Yeah, absolutely. It's been interesting to see Apple stand apart from the pack when it comes to their CapEx spending
03:23here, Gil.
03:24But I want to talk about, you know, how you're treating Apple when it comes to a company that you
03:29cover.
03:29You have a neutral rating on Apple.
03:32I mean, what would you need to see in the quarters ahead, knowing that John Ternus doesn't actually take over
03:37until September,
03:38that would make you reconsider and possibly bump up to a buy equivalent here?
03:45If they can have another growth year on top of this iPhone upgrade cycle, that's going to look a lot
03:53better.
03:54Because if they don't, if the folding phone doesn't come out this year, if it's not as compelling,
03:59if the improvements this year are uncompelling, they could be in a situation where revenue declines next year.
04:04Now, when you compare them to the other mega caps, your Microsofts, your NVIDIAs, your Amazons, Googles, Metas,
04:11Apple is the most expensive stock of the group and the lowest growth of the group.
04:17So they really have to show continuity of growth and maybe even an acceleration of growth
04:23to justify having the highest multiple of all the mega caps.
04:28That's what it would take from our perspective to become more positive on Apple vis-a-vis the other mega
04:35caps.
04:35And it's interesting.
04:36We just got in our inboxes a note from Dan Ives, of course, of Wedbush.
04:41And he leads off with Tim Cook.
04:44Leaving Apple as CEO is a shocker headline.
04:48And, Gil, I would just love to hear your perspective here.
04:50Because, you know, we've had Tim Cook at the helm of Apple for 15 years now.
04:54The man is 65 years old.
04:56I mean, how surprised are you by this news?
04:59Is it a shocker, would you say, that?
05:01Or does it seem like it's about time?
05:05Maybe I'm a little less surprised than Dan.
05:08It's been discussed.
05:09Tim Cook has had a great run.
05:11And he was able to take the company from Steve Jobs, make it very operationally focused, continue to grow every
05:20year, increase margins every year, return a lot of cash to shareholders, very operationally focused.
05:30And he's done a great job.
05:32And, again, he gets to leave on a high.
05:35And his successor, Mr. Ternus, will now have a big challenge, which is, after a high, you actually need to
05:42find a way to drive the engine of growth forward.
05:45And, again, I take the signal of that being Mr. Ternus, who came from the hardware and engineering organization, to
05:52say that the belief in Apple is that the next leg of growth is still in hardware and engineering innovation.
06:01But, no, not very surprising.
06:03I think it's been broadly suspected and circulated that this is a good time for a transition away from Mr.
06:11Cook.
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