Apple Inc. (AAPL): The Apple Car Exists … Sort Of

The past week has been awful for Apple Inc. (NASDAQ:AAPL) shares. But the company’s CEO, Tim Cook, has provided some reassuring comments — that is, on the strategy for Apple’s long-rumored driverless car. In an interview with Bloomberg TV, he said: “We’re focusing on autonomous systems. It’s a core technology that we view as very important.”

Apple Inc. (AAPL): The Apple Car Exists ... Sort Of
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In other words, it looks like Apple will not be a manufacturer. Instead, the focus will be on developing software systems to power self-driving cars. Consider that Cook calls this the “the mother of all AI projects.”

To keep up the growth and propel AAPL stock, there is little choice but to double down on this opportunity. Note that BCG forecasts that by 2035 there will be 12 million self-driving cars sold worldwide.

According to the report: “Mass adoption of self-driving technology will result in tremendous economic and societal benefits, and with it, far-reaching implications for automotive companies and other players in the value chain.”

While getting a piece of this market should provide a lift for AAPL, there remain some nagging issues. First of all, the company has been fairly late to the game. Megatech operators like Alphabet Inc (NASDAQ:GOOGL,NASDAQ:GOOG) and Uber have been investing heavily in the technologies for self-driving cars.

There have also been large acquisitions in the market, such as with the pending deal between Qualcomm, Inc.’s (NASDAQ:QCOM) and NXP Semiconductors NV (NASDAQ:NXPI), as well as Intel Corporation’s (NASDAQ:INTC) proposed acquisition of Mobileye NV (NYSE:MBLY).

Even traditional automakers have been making strides, such as Ford Motor Company (NYSE:F), General Motors Company (NYSE:GM) and BMW AG (OTCMKTS:BMWYY). And of course, there is Tesla Inc (NASDAQ:TSLA), one of the pioneers of the electric and autonomous-driving industry as we know it.

Now it’s important to keep in mind that Apple Inc. has a history of being late to the market. This was the case with the iPod and iPhone. And, of course, it did not matter. The fact is that Apple was able to leverage its technical and design expertise to dominate the opportunities. It also certainly helped that the company had Steve Jobs.

But then again, the development of an OS for the car is not like building a consumer device or cool app. It’s about creating mission-critical software that meets the demanding requirements of a highly regulated industry. This is why it has taken companies like MBLY many years to get adoption of their own technologies.

Because of this, it’s probably better for AAPL to look for acquisition candidates to bolster its efforts and get to market quicker. And perhaps the most intriguing is BlackBerry Ltd (NASDAQ:BBRY). The company has a thriving business for auto systems, which is based on a platform called QNX.

It’s a set of operating systems, middleware and development tools to help with security, infotainment and telematics. QNX has deals with over 40 automotive original equipment manufacturers and is installed in over 60 million vehicles.

Bottom Line on AAPL Stock

The efforts with AI are more than just about the Apple driverless car. The company sees this type of technology as being strategic to long-term growth.

In other words, AI will inevitably be critical for the next-generation iPhones as well as new products like HomePod. All the megatech operators — such as Google, Amazon.com, Inc. (NASDAQ:AMZN), Microsoft Corporation (NASDAQ:MSFT) and Facebook Inc (NASDAQ:FB) — are focused on this opportunity.

But AI is still in the early phases and will likely be, well, choppy (emerging technologies can be messy). So in the meantime, when it comes to AAPL stock, the biggest catalyst will be the iPhone.

Yet, the problem is that investors have aggressively bid up the valuation on the shares, up about 27% this year. What’s more, there remain some risks, such as with the continuing problems in China where the competitive environment is intense. And besides, it is still far from clear what the specs will be for the iPhone 8.

Thus, even though it is encouraging that Apple is making investments in AI and the self-driving car market, there may not be much left on the upside for investors.

Tom Taulli runs the InvestorPlace blog IPO Playbook and is the author of various books, including All About Commodities, All About Short Selling and High-Profit IPO Strategies. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, https://investorplace.com/2017/06/apple-inc-aapl-the-apple-car-exists-sort-of/.

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