Apple – Short Term Pain, Long Term Gain

Apple Cell Phone

The most followed and tracked and debated and discussed stock in the market is Apple (NASDAQ:AAPL). And that makes sense. It has a market capitalization north of $2.5 trillion. That means the total valuation of every country’s GDP outside of the G-7. The stock is in hundreds of exchange-traded funds. It is the subject of thousands of articles a week online and in print. And it’s a cornerstone for retirees. 

I don’t spend a lot of time focused on Apple. The reason is that AAPL is such a large part of the S&P 500’s weight and the Nasdaq 100. I focus on momentum in the broader market, and it’s a reminder that there are thousands of stocks trading publicly. But AAPL has entrenched itself as the most important company for several indices. And if this stock loses ground, it will drag the entire market down with it. 

At the moment, investors are paying close attention to news around its upcoming product releases. Delays in securing vital components will impact the rollout of the Apple Watch Series 7 and could put a dent into sales of its newest iPhone series. So, there could be some short-term pain. But Apple remains resilient. And if it has a short-term struggle in the hardware market, keep in mind that analysts are focused more on its services business and the possibility that it might expand into new lines of business. At the center of that attention is the Apple Car. 

Bernstein is Bullish

Investment firm Bernstein has run an analysis of what would happen if Apple successfully launches its own electric vehicle by 2025. It projects that they could sell 1.5 million cars by 2030. That would add upwards of $75 billion to its bottom line and double the company’s growth rate. Apple has not yet announced a plan for the vehicle. But it has been poking around Silicon Valley for some time on this subject. Given that Apple is so well capitalized at north of $2 trillion, Bernstein believes that this would be a smart move for the company. 

I do agree. But it will come at a significant cost to the rest of the automotive sector. If we recall what happened when Apple got into the cellphone business, it crushed companies like Nokia and Blackberry. The question is who Apple will hurt the most in a $2 trillion automotive market. My expectation is that it would be the company’s like General Motors and Ford, or perhaps Apple just buys one of the legacy automakers. We’re already witnessing one of the great upheavals of the automotive business by Tesla. Apple just adds more competitive pressure. 

I will continue to watch this. It makes sense, not just because of their capitalization, but also because Apple is well supplied in the rare earth metal market. That will be a key supply chain issue that they must address in the future. Assuming they avoid pressures like they are witnessing with their watches in the long-term, Apple will likely be on the hood of many cars driving down your street in 10 years.

Garrett Baldwin
Garrett Baldwin
Garrett Baldwin joined Godesburg Financial Publishing as Chief U.S. Markets Analyst in early 2021. A Johns Hopkins-trained Economist, he’s worked with hedge funds, venture capital firms, angel investors, and economic advisors to the U.S. government. Baldwin specializes in market anomalies and alternative investments. He’s written extensively on momentum, value, insider buying, and other unique strategies that provide investors that elusive edge.
Garrett Baldwin
Garrett Baldwin
Garrett Baldwin joined Godesburg Financial Publishing as Chief U.S. Markets Analyst in early 2021. A Johns Hopkins-trained Economist, he’s worked with hedge funds, venture capital firms, angel investors, and economic advisors to the U.S. government. Baldwin specializes in market anomalies and alternative investments. He’s written extensively on momentum, value, insider buying, and other unique strategies that provide investors that elusive edge.

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