by Despite an early slide, shares of Apple ( AAPL ) have rallied as investors digested the tech giant’s AI announcements. Antoine Chkaiban, technology infrastructure analyst at New Street Research, joins Market Domination to discuss
Chkaiban notes that while there were some “boring” moments at Apple’s Worldwide Developers Conference (WWDC) on Monday, “it was exciting because we thought it communicated very well the promise of generational AI at the heart of the operating system .” However, he doubts whether technology alone can spark a product cycle, explaining, “we’re not sure that on-device AI will enable game-changing user experiences because the hardware is only game changer… since GPT-4 is readily available on most iPhones through the ChatGPT app, the question is, do users really need to upgrade to use that technology.
However, he believes the stock is “fairly valued”, especially as services are at an all-time high.
For more expert insight and the latest market action, click here to watch this full episode of Market Domination.
This post was written by Melanie Riehl
Video transcript
U Let’s talk more about this move we’ve seen because analysts are praising Apple’s AI announcement.
It’s a bit mixed.
It took a little uh beat for them to get excited.
Shares initially slipped after Monday’s keynote speech before coming to record highs.
The next day joining us now is Antoine Kon who is a New Street Research Technology Infrastructure analyst, Antoine.
Good to see you again.
U So what do you do this kind of delayed reaction that we found in Apple shares with all the announcements?
Yes.
Hello Julie.
Thank you so much for having me.
Um So yeah, I’d say Monday’s keynote was uh boring and exciting at the same time because on one hand, they presented exactly what the iphone experience should be when it comes to using Siri uh in general , hatching a plan uh. together like an Uber ride and boarding pass, for an address in the calendar entry, et cetera, et cetera.
All of these experiences today are frustrating at best and suddenly um looked very sleek and pristine in Monday’s keynote, but that’s kind of deja vu, right?
And on the other hand, it was exciting because uh we thought it expressed very well the promise of AI generation at the heart of the operating system, it really has the power of uh redefining the way we interact with technology, for content creation tools with. uh like instructions coming in as a natural language context um now being taken into account uh as well as the way SAM interacts with the user, for creativity with SAM, generating content and doing tasks.
Um Probably with minimal instructions.
Yes, that’s it, that’s why our thoughts were mixed when we watched the Monday Keynotes.
Uh and I think the stock reaction showed that first.
Um now, uh I think it also shows that Apple is working hard on all of this.
And um I think the fact that it could drive a product cycle uh is still an open question.
Maybe it’s what’s driving the stock now, maybe this is what’s giving confidence.
U The market has confidence that it could drive a product cycle.
Maybe that’s what we’re seeing in the stock uh right now.
But what do you think, Antoine, um do you think it’s too early to say if it’s going to drive a product cycle?
Yeah, because I mean, I, I really don’t have a good answer for you because on one hand, you have Apple information that will only be compatible with, um you know, the products based on the uh A 17 pro and M single chip and above.
So maybe about 10% of apple’s active installation base.
So, uh if it’s well received with features, it could sustain a replacement because only 10% is compatible.
Uh But on the other hand, it’s a huge giveaway because of this, we’re not convinced that on-device AI will enable game-changing user experiences.
Uh Because the hardware is just game changing.
Uh You don’t really see an inflection point, you know, uh like the computer in the phones.
Uh It’s growing of course, but there’s no turning point.
And since GP T four is available anyway uh readily available on most iphones through chat, through the GP T chat app, uh the question is, do users need to upgrade in really to use that technology?
Uh the answer so far is not really.
So we will see if the integration with the operating system is really a game changing experience.
So Antoine put that all together.
What does that mean for more upside or not?
For Apple shares?
Yes.
So if you take a step back on all of this and, and look at the apple stock, so I think the stock is fair value.
Um you know, the fact of the matter is that the growth is peaked on most of the phones.
Uh iphone peaked in December uh 2021 back in September 2022 and uh you know, the share gains uh over 2029 2019 to 2022 driven by uh Huawei paying out in China.
And the move to in-house Silicon is now largely backwards, on the macros.
Then you have an ipad that will peak in December 2020 with the base growth installed.
Now now slowing down and renewing prolonged cycles.
So, if you look at services, they are not too high at all and that is driven by the App Store which is driven by licensing or by the market they have, with Google and um it is likely that a double increase in the collection of businesses will continue. digits in, as a whole, but we see limited room for acceleration here as well.
So the bottom line is that Apple has a mid- to possibly high-single-digit growth outlook.
Um and it’s trading at a very significant premium to the S and P names uh to SNP with, with a similar growth profile.
So, so yes, we’re still a little bit on the AI-driven product cycle as I mentioned earlier.
So put all that together and uh and that’s why we’re neutral on the name.
You notice Antoine, I’d like to get to this point that Apple’s keynote was music to your ears.
How to Anthony?
Yes.
Well, if you look, and really, if you look at the implications of the event like a second-order derivative for the broader technology infrastructure supply chain, it’s not just, I mean, Apple will have to pay as it is. you will have to pay an open AI to get uh uh GP T or O in the US.
And we estimate that it would cost Apple about $10 per device per year.
So in the short term, if it’s just 10% of the 2 billion device installed base, uh uh that’s 2 billion per year uh total $2 billion per year total.
Um uh But over the long term, if the entire installed base starts to widely use uh models like that, um it would cost Apple maybe $20 billion for the total installed base of 2 billion devices.
And so um uh if they want, to, uh if somebody uh wants to have access to enough uh compute to support that big of an installed base, they’re going to have to buy a lot of GP US themselves at Microsoft. .
So they would have to spend maybe thousands of dollars on GP US.
So first of all, before we talk about hands, that really reinforces our, our, our positive bias in NVIDIA.
And then for the hand, well, it puts the hand at the top of the hand-based silicon material inside the phones because the model is part of it, the technology is powered by um on device uh inference.
Um And so that’s positive of course for your hand and then uh since it’s positive for NVDR, uh and as you know, the gray CPU um that NVD I’m going to be selling with uh with Blackwell , but they are already studying with Hopper it is also based on uh on the hand instructions at architecture.
So that’s a positive for Arm Antony as well.
Very interesting take, I appreciate your time.
Thank you very much for joining us today.
Thank you.
