Without Self-Driving Cars, Where Is the Growth for Apple Stock?

Apple (NASDAQ:AAPL) has laid off 200 people from its “Project Titan” self-driving car project, leading some to ask whether the company can still innovate. This, in turn, has made investors question the growth prospects behind Apple stock’s longer-term story.

An Apple spokesman called the move a “reshuffling,” saying the company was still interested in “autonomous systems.”

This was preceded by analysts writing the project was being scrapped and by one of its leads, Alexander Hitzinger, being poached by Volkswagen (OTCMKTS:VLKAY).

The move is considered fallout from the “failure” of the Apple XR iPhone model to take off during the holidays, and a memo to employees from CEO Tim Cook promising action.

For Apple stock owners, this seemed to underscore the wisdom of a selloff that followed its September earnings report, which eventually lobbed-off nearly one-third of Apple’s market cap. Its value entering trade Jan. 25 was about $722 billion. It had been over $1 trillion.

But reports of Apple’s death are greatly exaggerated, as is the doom and gloom surrounding AAPL stock.

Whither the Self-Driving Car?

The move by AAPL led to speculation that technology for self-driving cars remains years away.  This specuation came despite numerous tests, including the Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) Waymo launch of a fleet of self-driving taxis in Phoenix, and its opening of a factory near Detroit to outfit vehicles for autonomous use.

While it’s true that fully autonomous cars are still confused by things like rain, and having no driver leaves them vulnerable to attack by Luddites, the technology continues to move ahead.

Rather than Apple deciding against the technology, it may be that the technology is just not for Apple … at least not in that form.

A host of companies, both on the car side and the tech side, are chasing full vehicle autonomy. Apple’s version, seen in October, did not seem especially innovative.

AAPL Stock: Where’s the Growth?

At its opening price of $157 per share, AAPL stock was selling for under 13 times earnings, despite having over $200 billion in cash and securities. This is the position it was in back in 2014, when Cook decided to split AAPL stock, launch a dividend and commit to spending big on cloud data centers.

Apple still uses third-party data centers, including those of Amazon (NASDAQ:AMZN) and Alphabet, for storing raw files, retaining the metadata, while it puts $10 billion more into such centers, having already built in Nevada, North Carolina and China.

Apple has also begun the laborious process of getting Food and Drug Administration approval for medical applications on the Apple Watch, starting with its EKG sensor. I have written a number of times that health applications, identifying and monitoring chronic conditions, are where Apple’s next trillion dollars will come from, and it now dominates wearables with 4.7 million units shipped in the September quarter alone.

The Bottom Line on Apple Stock

It took about 30 years for the PC to reach “technical exhaustion,” prices falling below $500 as new capabilities proved not worth paying for. After PCs reached this point, it took Microsoft (NASDAQ:MSFT) years to settle on a new, cloud-based growth path. At its nadir, Microsoft was selling for multiples little different from where Apple stock is now. Assuming it meets December’s estimates, Microsoft will be selling for about 22 times earnings.

It has taken the smartphone just 10 years to reach technical exhaustion, a point made clear by the Apple’s XR “failure.” But notwithstanding its retreat on self-driving cars, AAPL is further along in recreating itself than Microsoft was.

Young investors will have time to take advantage, because analysts are still going to see AAPL stock through the prism of the iPhone until it becomes obvious that cloud services and the Watch can make the company grow again. Their patience will be rewarded.

Dana Blankenhorn is a financial and technology journalist. He is the author of a new mystery thriller, The Reluctant Detective Finds Her Family, 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 in AAPL, MSFT and AMZN.

Article printed from InvestorPlace Media, https://investorplace.com/2019/01/self-driving-cars-growth-apple-stock-nimg/.

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