First there was FANG. Apple Inc. (NASDAQ:AAPL) wasn’t one of the four stocks. Then came FAAA. AAPL stock wasn’t in that either. Now, there’s a five-letter acronym, FAAMG. Apple finally makes the cut.
Apple CEO Tim Cook’s recent Bloomberg TV interview got me thinking about the letter A. While Cook was talking about autonomous systems, I was thinking about AAPL stock, which took a bit of beating in the June 9 tech correction, losing 4% of its share price.
It’s not a huge drop, mind you, but considering Apple stock had traded above $150 for more than a month before the correction, I’m sure shareholders thought $200 was just around the corner.
I wondered about Apple stock back in February, suggesting that its recurring revenue would take it to $200.
To Build or Not to Build
What I didn’t take into consideration at the time was Apple’s interest in autonomous systems — there’s that “A” letter again — but Cook’s statements in the Bloomberg interview would seem to indicate the CEO has big things in store for the automotive world, which might even rain on Elon Musk’s parade.
Initially looking to build its own self-driving car, expenses got so far out of hand that Cook put Apple veteran Bob Mansfield in charge of Project Titan, sent a lot of engineers packing, and refocused the team on building the software to deliver an autonomous driving system that third-party manufacturers could install in their cars.
“Apple has long been the wild card in the autonomous car game,” said Michelle Krebs, executive analyst for Autotrader. “Now we know Apple is all in, and, judging by its track record in other areas, it will be a force. Apple’s strategy to commercialize autonomous vehicles remains to be seen — will they partner and sell the technology or actually develop their own vehicles?”
To me, the former idea (selling technology) seems like a much better use of Apple’s workforce than going out and manufacturing a self-driving car for the masses.
Take Harman International Industries Inc (NYSE:HAR), for example. It markets stereos and related devices to car manufacturers. As car models run their cycle, new cars are developed, which require even more bells and whistles that Harman is only too glad to provide.
Apple could do the same with its autonomous systems technology. Heck, it could probably partner with Harman, which would do all the selling to the car manufacturers while Apple provided the technology.
Suffice to say, a $200 price for AAPL stock would not be the ultimate target should this become a commercial success. More like $1,000 given the size of the automobile industry.
If I were Apple, I would stay out of the car game altogether.
Is AAPL the Best of the “A” Stocks?
That’s a tough one.
Alibaba Group Holding Ltd (NYSE:BABA) is coming on like gangbusters with a cloud business that’s picking up steam. Amazon.com, Inc. (NASDAQ:AMZN) just unleashed a massive strike against the grocery store industry, and Alphabet Inc (NASDAQ:GOOGL, NYSE:GOOG) is well down the road to producing driverless cars.
Yes, Apple is the market-cap leader, but it won’t be for long if the iPhone 8 isn’t a resounding success with both consumers and the industry. Innovation beyond the iPhone is what will keep AAPL in the lead among the “A” stocks.
As it continues to grow services revenue, Apple gains more time to build a state-of-the-art autonomous driving system that will make the car world salivate.
It’s a tall order, for sure, but if it succeeds, AAPL will become the best of the “A” stocks well into the 21st century. As it stands now, Apple is probably tied with Alphabet, slightly ahead of Amazon (but not for long), and easily ahead of Alibaba.
No pressure, Tim Cook.
As of this writing, Will Ashworth did not hold a position in any of the aforementioned securities.