The excitement surrounding Apple’s upcoming iPhone 17 launch is palpable, with investors pinning their hopes on Apple Intelligence, the company’s foray into artificial intelligence, to reignite sluggish iPhone sales. While the prospect of Apple Intelligence driving a new super-cycle of iPhone purchases is enticing, prudent investors need to delve deeper and consider both the bullish and bearish factors before jumping on the bandwagon.
The chart of AAPL stock, while used to illustrate the broader point, highlights a crucial aspect: despite the hype, AAPL stock has shown a negative pattern in the short term. After reaching the top of the resistance zone in July, the stock failed to break through and subsequently fell to the bottom of the support zone before rallying again. However, this rally was halted at the low band of the resistance zone, indicating a lack of strong momentum.
While investors are fixated on the potential of Apple Intelligence to revitalize iPhone sales, several red flags should be considered:
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Limited Availability:
Apple Intelligence will likely not be available in the European Union and China. Even in the U.S., full functionality will be rolled out gradually, leaving many features unavailable initially.*
Half-Baked Initial Launch:
The initial iPhone implementation of Apple Intelligence might be limited, potentially delaying the anticipated super-cycle.*
Overblown Marketing:
The marketing hype surrounding Apple Intelligence surpasses reality. Apple doesn’t own its AI; it licenses it from OpenAI. The AI model is not running on iPhones or Apple servers but rather on NVIDIA servers owned by Microsoft.*
Google Search Dependency:
Apple receives a substantial $20 billion annually from Google to be the default search engine. However, a recent ruling declared Google a monopolist, potentially jeopardizing this revenue stream.*
Market Share Losses in China:
Apple faces growing competition from Huawei in China, where many consumers perceive Huawei phones as superior. Huawei’s introduction of the world’s first tri-fold phone poses a direct threat to Apple’s iPhone dominance.*
Geopolitical Risks:
Rising nationalist sentiment in China due to US-China geopolitical tensions creates significant risk for Apple, as China accounts for about 20% of Apple’s sales.It’s important to remember that Apple has a history of manipulating its stock. After the last event, where Apple carefully staged a stock price increase, the stock started to fall. Apple aggressively bought its own shares to trigger a technical breakout, showcasing its sensitivity to stock performance. The upcoming event taking place on a Monday, an unusual move for Apple, further underscores its concern, possibly related to a potential European Commission decision to impose $14 billion in taxes on the company.
While a short squeeze and a weakening yen have temporarily buoyed the stock market this morning, prudent investors should not become complacent. It’s essential to monitor the market closely and maintain a robust protection band. This can be achieved through various strategies, such as holding cash, investing in Treasury bills, employing short-term tactical trades, and utilizing short-to-medium term hedges.
Ultimately, investors need to balance their excitement about Apple’s potential with a realistic assessment of the challenges and risks. While Apple Intelligence holds promise, its success is not guaranteed. Investors should carefully consider all factors, both positive and negative, before making any investment decisions.
