It’s good to be King, but (on Wall Street, at least) a king must justify his crown with every turn of the calendar.
As Apple Inc. (NASDAQ:AAPL) prepares to host its Worldwide Developer Conference (WWDC) with its shining city on a hill, and with the spaceship now called Apple Park almost complete, the world’s most valuable company ($808 billion and climbing) should be proud to the point of arrogance.
And, it is, too. This may be why smart people, such as our Tom Taulli, are worried about Apple as an investment. Good news seems baked-in, he writes, and there are risk factors.
There always are, though. Apple’s gains so far in 2017 have practically matched those of Amazon.com Inc. (NASDAQ:AMZN), which everyone says rules the world. And, they have outpaced those of Alphabet Inc (NASDAQ:GOOGL, NASDAQ:GOOG), which everyone says rules the Internet.
Apple must be ruling the universe, then, right? Right?
Developers, Developers
The WWDC is not supposed to be a hardware event. It is meant for Apple’s developers who want to know what new applications they might develop soon for the Macintosh, iPhone, its TV services and the Watch.
But, European filings indicate there will be hardware next week. The event is due to focus on the iPad tablet, which badly needs a refresh, although there are rumors of a Siri Speaker that will compete with the Amazon Echo, at a higher price point.
The maturity of its primary market, however, can be seen in its latest ads, already online, which directly target Google’s Android operating system, claiming iOS performs better, with better security and privacy. It needs to, if it is to justify a price tag that can be $500 more than a good Android phone.
The New iPhone
Good analysts like InvestorPlace’s Vince Martin think Apple will remain stuck in neutral until its new iPhone hits the market and proves its worth.
You can expect that phone in the fall, with an edge-to-edge screen, a fingerprint sensor in place of the home button, dual cameras and speakers, along with a flip case that lets it be used as a PC replacement. Employees are being told to be at their posts from September 17 to November 4 to serve the rush.
UBS is expecting a massive rush, enough to send the stock up 24%, to $190 per share, which would equate to a market cap of well over $1 trillion. UBS expects millions of iPhone 8s to jump off shelves at $730 each, with 40% of that price flowing to Apple’s net income.
It’s these expectations of a “super cycle” that have kept AAPL stock rising through 2017. Apple investors have become accustomed to seeing 20% of revenue flow to net income, with operating margins of 25%. UBS is expecting that to rise.
Despite having nearly $250 billion in cash, meanwhile, Apple pays out its $3.3 billion per quarter in dividends with debt, which is now up to 25% of assets. A Trump tax holiday that encourages the company to bring some of that overseas cash back might quickly pay down the debt, which is why it doesn’t trouble professional analysts.
Bottom Line for AAPL Stock
Expectations for the iPhone 8 are over the moon.
It is, in the end, just another phone, and the price difference between new Apple products and good, even if unspectacular, Android products continues to rise — not narrow, as you would expect in a mature market.
Maturity is the theme that has our writers concerned. The iPhone, iPad and the Macintosh are mature products. The leading edge of computing is in areas like Siri, which leads to artificial intelligence applications, in gaming, where Apple has no play, and in health, where Apple keeps teasing (but not delivering) a Watch that can do real medical tests.
We are right to be skeptical. Not enough to sell, but enough to let our fingers hover over the sell button.
Dana Blankenhorn is a financial and technology journalist. He is the author of the historical mystery romance The Reluctant Detective Travels in Time, available now at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing he owned shares AMZN, AAPL, FB and GOOGL.
