History Could Repeat For Apple With A Hardware High
Contributor since 2014 / 3106 Followers
Summary:
- Apple’s stock reached an all-time high ahead of the 2023 Worldwide Developer Conference, where the company unveiled its mixed-reality headset, Apple Vision Pro.
- The headset could revolutionize communications and be a game-changer for the metaverse, which McKinsey predicts could be a $5 trillion opportunity by 2030.
- Investors should be cautious, as Apple’s stock experienced a 30% downturn after the 2015 launch of the Apple Watch, and the Vision Pro’s high-end price may deter adoption until its applications are fully realized.
Nikada/iStock Unreleased via Getty Images
Apple (NASDAQ:AAPL) stock rallied to a new all-time high this week as the company was set to host its 2023 Worldwide Developer Conference. In this article, I will discuss the potential for a price high in the coming weeks.
Apple’s last hardware launch marked a high
The buzz around Apple’s 2023 Worldwide Developer Conference has been the long-awaited release of its mixed-reality headset.
The world’s largest publicly listed company now has a market cap of almost $3 trillion. The company’s WWDC event is normally focused on new software and developer tools, but on this occasion, the market was treated to the first hardware release since 2015.
Apple’s mixed reality headset marks the first big hardware release since the Apple Watch and could revolutionize communications. Previous updates said the headset would be able to switch between augmented and virtual reality and would be a 3D version of its OS operating system. Bloomberg said the new headset, named Apple Vision Pro, will have multiple cameras and sensors for hand and eye control, while it will also have apps for gaming and fitness uses. Are we looking at a really expensive $3,500 version of the Nintendo Wii, or will consumers embrace a new way of communicating virtually?
“I believe that augmented reality is a profound technology. Blending digital content with the real world can unlock experiences like nothing we’ve ever seen,” CEO Tim Cook said.
I said in a Seeking Alpha article over a year ago that Apple’s headsets could be a “game-changer” with the potential to embrace big analyst predictions for the metaverse. McKinsey previously said that the metaverse could be a $5 trillion opportunity by 2030, but it has been slow to get off the ground thus far.
However, a recent report by Bloomberg said that Meta’s (META) staff working on the company’s virtual landscape did not like the “uncomfortable” and “glitchy” headsets from the company.
Interestingly for Apple, its last major hardware release in April 2015 marked a high for the company’s stock. Will we see history repeat with Vision Pro adoption being priced ahead of the curve? In hindsight, Apple stock only saw a roughly 30% pullback at that time.
Artificial Intelligence is another anticipated move
The major tech companies have all made recent announcements about their plans to monetize the fast growth being seen in the metaverse. This may be Apple’s turn to showcase its AI plans.
After Nvidia’s (NVDA) stunning earnings release and outlook, gains in that area may come long before the metaverse. A recent Forbes article summarized Apple’s potential path to AI riches.
In February 2022, Apple purchased AI Music, which is a startup focused on creating AI-driven playlists. If incorporated with its fitness apps then personalized soundtracks to match your heart rate or fitness endeavors could be an option. Another could be soundtracks for slideshows or other business events.
In February this year, Apple CEO Tim Cook said AI had, “enormous potential in this space to affect virtually everything we do,” and will, “affect every product and every service that we have.”
It has also been suggested that Apple will launch its own large language model. Forbes cited rumors of rumors that its teams, including Siri, were involved in regular LLM experiments.
What about the current Apple valuation?
As the stock has jumped to a new all-time high, it could move even further if investors are impressed with the WWDC.
Apple’s current price/earnings ratio of around 30x earnings is 19% higher than the tech sector, but we can allow the company a premium. Legendary investor Warren Buffett said in his company’s recent earnings release that Apple was “better than any business” his Berkshire Hathaway conglomerate owns.
The “Oracle of Omaha” said that the iPhone’s popularity with consumers made it an “extraordinary product.”
It is not all about the iPhone for Apple and its recent earnings posted an all-time high for its services segment. The figure was $20.9 billion and only inched ahead of last year’s $19.8 billion, but it’s very likely that services will grow in line with the adoption of the Vision Pro headset. That will make Vision Pro sales a very important indicator of future growth in my view.
Conclusion
The arrival of Apple’s Vision Pro headset marked the first big hardware release since the launch of the Apple Watch in 2015. Unfortunately for investors back then, that launch was followed by a 30% downturn in the stock price and is a reason to be on guard this time around.
The Vision Pro release may take time to see investor adoption as its high-end price could be a deterrent until its applications are fully seen.
For now, the stock is trading at a fair valuation and I see the potential for further gains in the near term as we have no big tech earnings for another eight weeks. However, the higher it trades, the less upside potential there is and investors should be careful following the price higher from here.
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