As Apple (NASDAQ:AAPL) collaborates with ChatGPT developer OpenAI, some financial traders are too busy buying Apple stock to consider the implications. Investing in Apple doesn’t make sense if the best-case scenario is already priced in.
Don’t get the wrong idea. It’s totally understandable that Apple wants to add AI functionalities to its popular tech gadgets. Apple’s eager investors may have gotten ahead of themselves, and chasing soaring stocks can be risky for your finances.
Apple Takes the Top Spot
So, it’s official. As of this writing, Apple is the most valuable company by market capitalization in the U.S. Amazingly, Apple’s market cap stands comfortably above the $3 trillion mark.
It didn’t require a lot of digging to uncover the reason for this. Apple had just unveiled a new AI platform, known as Apple Intelligence, at the company’s Worldwide Developers Conference event.
Furthermore, Apple revealed new generative AI features for its upcoming iPhone versions at the WWDC event. These gen-AI features “will help summarize text, create original images and retrieve the most relevant data when users need it,” according to Bloomberg.
A separate Bloomberg report stated that Apple revealed an “arrangement with OpenAI to integrate ChatGPT into the iPhone, iPad and Mac.” Interestingly, however, the two companies “were mum on the financial terms” of this arrangement.
You can probably guess what happened to Apple stock in the wake of these AI-centered announcements. The buyers went absolutely bananas, immediately sending the Apple share price to all-time highs.
Apple’s Investors Must Be Realistic
As a “buy low, sell high” type of investor, I get wary when the market prices best-case scenarios into a stock. In Apple’s case, the best-case scenario is that consumers will be as enthusiastic about pricey, gen-AI-enhanced iPhones as stock traders are.
For one thing, not all upcoming iPhones will have the new gen-AI features. As Barron’s pointed out, “Apple Intelligence will be available only on iPhone 15 Pro and Pro Max smartphones, which by some estimates is just 5% of the current iPhone installed base.”
As I alluded to earlier, investors don’t know the financial terms of the Apple-OpenAI deal. For all we know, Apple might end up paying more than the gen-AI technology is really worth.
Also, there may be trust issues. Apple’s reputation could be jeopardized as data derived from ChatGPT might contain errors and/or people’s private information.
Finally, it’s not assured that consumers will care about gen-AI-infused smartphones all that much. To borrow a quote from Robert Pavlik, senior portfolio manager at Dakota Wealth Management, “We have to be realistic, and it will take time to see confirmation in the numbers.”
The problem is that ultra-eager investors didn’t wait to “see confirmation in the numbers.” They just decided to buy Apple stock and ask questions later.
It’s Time to Take Profits on Apple Stock
Apple is a juggernaut among tech-gadget makers. Yet, even a great company like Apple can be overvalued sometimes. This is especially true when the market assumes that best-case scenarios are inevitable.
For all we know, the company’s deal with OpenAI might not have favorable financial terms for Apple. In addition, it’s not guaranteed that consumers will cough up big bucks for gen-AI-enhanced iPhones.
The takeaway here is that investors should take profits on Apple stock since it just broke through all-time highs. If the stock pulls back at least 10%, it’s fine to reenter with a small Apple share position.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
