Just weeks after being dealt defeat in the Dell proxy fight he started, activist Carl Icahn is making a comeback, and in a big way. On Aug. 13, Carl Icahn tweeted out that he now holds a large position in Apple, saying that he believes the stock to be extremely undervalued. In late October, Icahn shed some light on just how large his large position in Apple currently is, about 4.73 million shares, worth somewhere around $2.5 billion.

Icahn, who now owns 0.5% of Apple, has been much noisier than the average shareholder, and already has met with Apple (NASDAQ: AAPL) CEO Tim Cook to discuss a $150 billion share-buyback program, which Icahn is advocating as the proper way Apple should utilize its $147 billion in cash. Yet just because this legendary investor says something doesn't mean it's right. In fact, he is dead wrong about Apple.

Icahn's plan could send Apple shares to $1,250
While Apple has already launched a $60 billion buyback program it plans to enact over the next three years -- a plan which the company marks as the largest ever and one which it will revisit each year -- Icahn is unimpressed. He wrote in his letter to Cook that while it "may seem like a large buyback, it is simply not large enough given that Apple holds $147 billion of cash on its balance sheet."

Icahn continued on in his note to propose a $525 per share tender offer, facilitated by Apple borrowing $150 billion at a 3% interest rate. This, Icahn says, would result in an immediate 33% boost to earnings. After three years and with the benefit of earnings growth, Icahn sees shares of Apple soaring to $1,250.

While the short-term benefits of this program are indisputable, whether or not if this plan is in the best interests of long-term shareholders has come into question. Icahn said in the letter that "commencing this buyback immediately would ultimately result in further stock appreciation of 140% for shareholders who choose not to sell into the proposed tender offer," adding, "to invalidate any possible criticism that I would not stand by this thesis in terms of its long term benefit to shareholders, I hereby to agree to withhold my shares from the proposed $150 billion tender offer. There is nothing short term about my intentions here." Unfortunately, I'm not so sure.

Apple needs to start "thinking differently" again
While a rising share price is undoubtedly something I would cheer as an investor in Apple, over the long run emptying the vaults to buy back stock is not something that is going to keep the company growing 5, 10, or even 20 years from now. Instead, Apple should return to its innovative roots, and start "thinking differently" as it once did.

Just look at how Google (NASDAQ: GOOG) is venturing into self-driving cars and Google Glass, two products which like the iPhone and iPad, were unimaginable before substantial investment by these companies. Or how Amazon (NASDAQ: AMZN) has poured millions into building the infrastructure required to support the rapid growth Amazon expects in its web services division. In 2012, this segment produced only $2.52 billion in revenue. In 2020, over $20 billion in revenue is expected.

A rising stock will come with growth, as the market rewards companies whose primary focus is investing in the future with hefty multiples. Amazon did not even make any money in the third quarter, while Google carries a P/E ratio near 30 compared to Apple's 13. While the passing of Steve Jobs undoubtedly took some of Apple's innovative magic away, there are countless great ideas and visionaries in the world, and Apple has the money and means to make these dreams a reality, and fuel the company's future growth in the process.

Recently rumors have been swirling as to if Apple will release an "iTV" early next year, but even if it does, this product must only be the first in a series of new products to come. One of the advantages of having $147 billion in cash is that not all growth must be organic, and major acquisitions are a potential reality. As a long-term investor in Apple, I would much rather the company buy Facebook and Netflix and still have $7 billion left over than spending all of its $147 billion buying back its own stock.

The Foolish bottom line
While I am glad Carl Icahn is bringing some attention to Apple's management of its cash, I strongly disagree with his storm-term minded share buyback program, and would rather have the company invest in the products of tomorrow like Google and Amazon. My respect for Carl Icahn is great, but at least on this one, he is dead wrong.

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Ryan Guenette owns shares of Apple. The Motley Fool recommends Amazon.com, Apple, and Google. The Motley Fool owns shares of Amazon.com, Apple, and Google. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.