A Wall Street analyst urges caution on Apple stock because of the company's lack of a clear strategy for artificial intelligence, including generative AI.
Needham analyst Laura Martin said Apple risks falling too far behind Big Tech rivals to catch up in AI if it doesn't get its act together.
"Apple must articulate a GenAI action plan," Martin said in a client note Friday. "Apple is 1-2 years behind its Big Tech competitors, so any GenAI plan will be expensive to catch up through higher costs to the P&L and higher capex, and maybe even an acquisition."
Further, if it doesn't act, tech talent will leave Apple to work for big players in artificial intelligence such as Meta Platforms, OpenAI, Anthropic and others, she said.
Also, Apple iPhone users might switch to handsets running Google Android software if Alphabet's Google gets too far ahead in AI technology.
Martin rates Apple stock as hold, or neutral.
"We believe that Apple's share price will fall once investors understand the investment levels required to catch up with the other Big Tech conglomerates that were early adopters of GenAI," Martin said.
Cook On The Chopping Block?
Lack of a clear AI strategy could even cost Chief Executive Tim Cook his job, she said.
"Press and Wall Street's calls to replace Tim Cook as Apple CEO are getting louder every quarter that Apple doesn't lay out a comprehensive GenAI strategy," Martin said. "With Apple shares down 14% year to date (vs S&P 500 up 8%), it's clear to us that investors are insisting that Apple get off the sidelines."
However, if Apple makes a costly move to invest heavily in AI, it will be a shock to investors, she said.
Potential shocks would include Apple raising its capex from $12 billion in fiscal 2025 to $30 billion to $50 billion a year to invest in AI data centers, she said. Or it could make a multibillion-dollar acquisition, such as the rumored purchase of Perplexity AI, valued at $14 billion.
Apple Stock Faces Overhangs
Morgan Stanley analyst Erik Woodring said sentiment won't materially shift on Apple stock until investors get clarity not only on the company's AI strategy but also tariffs and the pending Department of Justice ruling on Apple's search engine deal with Google.
Woodring rates Apple stock as overweight, or buy, with a price target of 235.
On the stock market today, Apple stock rose a fraction to close at 213.88.
"We still need key overhangs to dissipate before getting more structurally bullish," Woodring said in a client note Monday.
Apple is scheduled to report its fiscal fourth-quarter results late Thursday.
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