Apple’s slump deepens in wait for AI

Market value falls below rival Microsoft Corp. as investor impatience grows over new projects

Apple Inc.’s move to shutter its electric car efforts and divert those resources to artificial intelligence projects might have emboldened traders a year ago.

Instead, the stock’s slump has only deepened.

The company has revealed very little about its AI efforts, with chief executive officer Tim Cook promising shareholders last week Apple would “break new ground” in AI. Investor impatience is growing, with the stock slumping 12 per cent this year, pulling its market value below Microsoft Corp.’s.

“Investors found this thing called generative AI that captured their attention last year and it’s taking money away from other tech companies because people want to be in the hottest thing,” said Kim Forrest, chief investment officer at Bokeh Capital Partners LLC. “Rightly or wrongly, Apple has to show that it’s still relevant in a world where investors want AI.”

Apple’s pivot comes as iPhone sales remain sluggish, with sales in China plunging during the first six weeks of this year. Its biggest new product release in years, the Vision Pro headset, is a long way off from contributing to sales growth in any meaningful way.

“There’s been a real focus on how Apple hasn’t come out with some killer product in a very long time,” said David Klink, senior analyst of equity research at Huntington National Bank. “Obviously it’s been kind of a hard time for Apple holders to watch Nvidia and whatnot.”

Wall Street is becoming more skeptical of the megacap giant. Apple was recently removed from Goldman Sachs’ conviction list and Evercore ISI’s tactical outperform list. The company has the lowest ratio of buy ratings to holds and sells since 2020.

“Forget the car, what matters most for this stock is the AI strategy launch,” Melius Research analysts led by Ben Reitzes wrote in a note this week.

While Apple’s move away from EVs has been broadly welcomed, analysts are looking for the company to release its own generative AI product. Samsung Electronics Co.’s updated Galaxy line of smartphones can live-translate phone calls, transcribe voice recordings and use generative AI to fill in parts of photos. “Samsung has a generative AI phone right now and is getting a lot of positive buzz about it, and Apple doesn’t yet,” noted Rhys Williams, chief strategist at Wayve Capital Management.

Still, for bulls, the company’s potential to capture public imagination with an AI enhancement means that investors should be patient. Melius analysts see new AI services driving users to upgrade their iPhones, kicking off a “supercycle” in 2025.

“It’s time for a deep breath,” wrote Melius’s Reitzes, noting that 99 per cent of Apple’s installed base of more than 2.2 billion devices “are never going to switch to Android — so a ‘comeback’ is likely.”

Apple has to show that it’s still relevant in a world where investors want AI.

KIM FORREST CHIEF INVESTMENT OFFICER AT BOKEH CAPITAL PARTNERS LLC