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Why Apple Stock Coasted 5% Higher This Morning

By Rich Smith – Aug 3, 2020 at 1:35PM

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A Chinese artificial intelligence company wants to take a bite out of Apple.

What happened

Shares of tech giant and iPhone-maker Apple (AAPL -1.96%) are up a strong 15.5% over the past week, soaring to an all-time high after reporting strong third-quarter earnings and a surprise 4-for-1 stock split. These shares are even continuing to rise today -- up more than 5% in early trading and hanging on to about a 3.1% gain as of 12:25 p.m. EDT.

Which is kind of surprising, considering the news.

Apple with a bite taken out of it

Image source: Getty Images.

So what

This morning, The Wall Street Journal reported that a little-known Chinese tech company -- Shanghai Zhizhen Network Technology -- is suing Apple for $1.4 billion in Chinese court, alleging that Apple's virtual assistant, Siri, violates patents held by Zhizhen.

Shanghai Zhizhen won a favorable ruling on its patent from China's Supreme Court in June, according to the Journal. Now, it seems to be leveraging that win in an attempt to extract $1.4 billion in patent licensing fees from Apple. If the tech giant fails to agree to its terms, Shanghai Zhizhen could conceivably ask China to ban the production and sale of Apple devices utilizing Siri within China -- Apple's biggest foreign market and the source of most of the iPhones it builds for sale elsewhere.

Now what

This would appear to represent a significant threat to Apple's business -- so why is the stock going up today despite the news?

According to the Journal, Shanghai Zhizhen's lawsuit "isn't a surefire win" and injunctions against production and sale "are rarely granted by Chinese courts" -- so the threat posed by Shanghai Zhizhen may be overblown. Potentially, Apple could end up putting the conflict to bed with a licensing fee far less than $1.4 billion.

In the meantime, investors seem happy to discount the threat in light of the prospect of seeing their shares of Apple quadruple in number (if not in value) later this month. Apple's split is scheduled to go into effect on Aug. 24.

Rich Smith has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Apple. The Motley Fool has a disclosure policy.

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