All of Wall Street has been saying the “consumer AI revolution” is gonna go through Apple for the last three years. When everyone believes the same thing it’s usually good to be a bit cautious.
Was watching CNBC last Friday and I heard at least three different analysts say the “consumer AI revolution” is gonna go through Apple.
Josh Brown (Ritholtz Wealth Management):"Other companies that are of comparable size are borrowing money in the bond market and spending over 100% of their cash flow on this \\\[data center\\\] capex buildout. Apple's getting paid by all of them... Apple is the toll booth for consumer AI. Period".
Wamsi Mohan (Bank of America): In an investor note, Mohan argued that "Apps now compete for downloads and screen time. Someday they might compete to be the service that smartphone agents call on." Companies spending hundreds of billions on AI models will likely have to pay Apple to interface directly with the consumer.
Dan Ives (Wedbush Securities): Describing Apple's approach as a potential massive "windfall", Ives noted in a research note that infusing generative AI into Apple's massive ecosystem will unlock up to an "additional $450 billion to $600 billion in market value for Apple".
And more…
I get the intuition to say that Apple is the right one to do this as it has “2.5 billion iPhones” but the fact that everyone is on the same page for a stock that trades at 35x is a bit alarming to me.
Revenues and Earnings at Apple despite the services growth have been largely flat for the last 5 years plus the squeeze in China still hangs over the stock.
Here’s my write up:
Here’s the bear case on Apple
Recently heard a guest on CNBC say that Apple is his best MAG7 pick for the year and was taken by a surprise. He did a good job of presenting the catalysts for Apple but let us look at the negatives:
1. Apple trades at 30+ PE which is high for any company but given the user base stickiness of the product lets call it fairly valued for leniency. However paying that much for a company that has grown revenue and earnings about 15% in the last 4-5 years is a bit unsettling. Apples earnings grew from $94bn in 2021 to $112bn in 2025. Revenue too has been stagnant going from $365bn in 2021 to $416bn in 2025.
2. iPhone 15 pro was supposed to be the AI iPhone and three years later it still isn’t. We are now waiting for iPhone 18 to have proper Siri AI. (As iPhone users would know Siri in its current form is terrible) The promise of Apple Intelligence is yet to be real and the supposed upgrade super cycle yet to be seen. Also, Apple hasn’t spent much on AI and is counting on others to make the infrastructure before it gets in the game. This strategy has worked in the past but it is yet to be seen if it works with AI.
3. Dead product cycle, apple hasn’t really launched a major revenue generating hardware product since AirPods. The Vision Pro was a complete dud two years after its launch it hasn’t gone mainstream at all. This was evident when Apple scaled back production of the product which it rarely does for a hardware consumer product. With iPhone fold coming it will be surprising if it actually is a major revenue driver and not a Vision Pro like dud simply because of the price iPhone fold is gonna cost $2500+ and that it self prices out much of the customer segment.
4. The bet is that people will switch from their ChatGPT Gemini etc apps to the Apple Siri app for the deep integration. However, it discounts the fact that many people are already in the ecosystem of these apps and prefer using them to entice users to use the Siri AI app instead would be a big of a task unless it’s an open law like product which it doesn’t seem to be yet.
5. Cost pressures: With Apple announcing 15-20% price hikes across the board revenue is likely to go down even if earnings somehow retain. If the semi conductor shortage remains Apple could see margin pressures from memory and other hardware chips costs till 2030.
6. Lastly, \\\[HOT TAKE\\\] smartphone as a gadget has kind of peaked meaning only incremental improvements are coming in nowadays. Since iPhone X in 2018 what’s mostly changed on an iPhone is camera, software and Nodge.
With the advent of AI it is possible that a new device comes in that replaces the phone as the everyday gadget in that scenario apples long term prospects are challenged. However it could also be like a car which is still an integral part of human life in US and improves incrementally.