Apple might be 'stuck in the last tech boom,' says Needham's Laura Martin

Welcome back to the exchange. Shares of Apple are soaring after the company announced $110 billion stock buyback program, which overshadowed a drop in iPhone sales in its fiscal second quarter earnings report. That’s by the way, the largest ever for a public company and is much higher than forecasts. Our next guest says that while this is good for the stock right now, the longer term issue is whether Apple is doing enough enough to be relevant in the next technology disruption. Of course that’s AI, or whether it’s still stuck in the last one, which is mobile. Joining me now is Laura Martin, Senior Internet and Media Analyst over at Needham. Laura, this is a conversation that maybe isn’t new because a lot of folks have a have a concern about Apple’s ambitions and plans and artificial intelligence. Take us through what’s most worrisome for you and what Apple needs to do to right the ship, right. So what’s most worrisome for me is the fact they just announced $100 billion share repurchase, which is fantastic for shareholders today. But they’re sort of mortgaging their future because they’re doing that in the face of Microsoft CapEx up 70%, Google Alphabet CapEx up 90%, Facebook $5 billion of extra CapEx just in the last quarter. Like these generative AI like anchor tenants are raising CapEx enormously. And here is Apple say no, no, our CapEx guidance stays the same and we’re going to take $100 billion and rather apply applying it to the next Rev tech revolution, we’re going to just apply it to buying in shares. I think that’s problematic on the five year time frame for earnings. What can, what can someone do? What can a company like Apple do with a war chest, an incremental war chest by the way because that’s just what they’re buying back with first for stock. What can they do with 100 plus billion dollars to deploy? What if they were hypothetically to do something for CapEx? What does that even look like at the scale of $110 billion? I mean, it’s a great question. I just think their vision is so focused on mobile, which was the last revolution that they can’t actually get out-of-the-box of mobile and they probably can’t spend $100 billion in the mobile ecosystem. But this idea that Amazon and and Alphabet and Microsoft about retooling all of American business to the cloud with lower cost with faster new product innovations, they’re talking about completely revamping the winners and losers in all of American industry, which is $3 trillion a year. That’s sort of what these big guys are playing for right now. And Apple’s talking about the mobile ecosystem, which just feels very nichy even though it’s a global business compared to what these other CapEx, you know, big should be hyperscalers are talking about. All right. So Speaking of hyperscale, there is no more hyper scale than then most people would characterize. The install base for Apple’s users are whether they be iPhone users, the app services, iPads, Mac computers. They’ve got a very loyal and strong user base and install base. What can in your mind, Apple do to change its narrative in artificial intelligence? Is it a mobile assistant? I mean series already on my phone, but Microsoft has Copilot. They got the chap, GPT enabled stuff. You’ve got meta rolling out their AI search on Instagram and and reels and and WhatsApp and everything else and and Facebook. What can Apple do with that install base that makes it that much more palatable for AI investors, right? So within that mobile ecosystem, which I’m characterizing as narrow, they can do a lot of stuff with with AI and generative AI. Like for example, they can see that if you use like these three apps on your phone, another million people who use those 3 apps also use this other app. They can drive discovery of more use of your because they’re the ones who know what you’re using on your phone. So they can make the usage of your iPhone more efficient by looking at how other people are using iPhones. They can look at best, you know, just elevating new apps for you. They can look at, they can, you know, recommend you try this or try that. So they can do a lot within their ecosystem because they have the best information, but it all feels very small and very scaled to making their competitive seats more efficient, which has nothing to do with retooling all of American business. This is not just though, Apple. We’re talking about every mega cap technology, media and telecom company running into the same kind of hurdle right now. And that’s more government oversight and regulation, antitrust concerns. We have a lot of these companies that are being blamed for already doing too much and being too intertwined in our lives. How do these companies and Apple specifically straddle that line, toe that line to make something revolutionary and at the same time keep the government out of its business, right. So I think, I think first of all, acquisitions are off, that the governments around the world think these big companies are too Big South, no more acquisitions for that. That’s sort of off the list. If what they do is create innovations that make their products stickier or garner the next consumer dollar, I think it’s very hard for regulators to get involved there because they will keep getting larger. But how does the regulator say stop innovating or stop having consumers pay a 50% premium for your product like consumers pay for, for Apple products? I don’t think regulators can get involved at that granular basis, but it does limit the competitive choices for these megastan. They just have to make their business better and their turn lower and their consumer proposition better than their competitors that and so because government it’s hard for them to get involved at that point.