Tim Cook grew Apple (AAPL -0.05%) from a $350 billion company to a $5 trillion company over his 15 years as CEO, and the stock returned 2,740% to shareholders over that time.
Apple stock hit the $5 trillion mark as Cook gave his last earnings call as CEO, a fitting tribute to a leader who skillfully filled the big shoes of founder Steve Jobs.
The question on everyone's mind is whether new CEO John Ternus, who took over as of Sept. 1, can continue that streak. Apple stock has since pulled back slightly after management warned of skyrocketing memory prices and decelerating growth. Here's what investors should be watching as Ternus takes over.
Apple Intelligence
Prior to its rise earlier this year, the market had viewed Apple negatively for its lack of artificial intelligence (AI) advances. All of the other mega-cap tech stocks, like Microsoft, Amazon, and Alphabet, have been spending on AI development like it's going out of style, which it most definitely is not, and that's the problem. Apple has been touting its own Apple Intelligence, but it hasn't released a large language model (LLM) or any groundbreaking AI platform.
Image source: Apple.
Recently, Apple announced an upgraded Siri, its voice assistant, based on a customized LLM developed in partnership with Alphabet, and so far, management says it's getting great feedback.
Apple is about consumer devices, which is why it can get away with outsourcing some of its tech to partners. However, how it integrates AI into its product line will be a critical factor in its success over the next few years.
The user experience is everything
That leads to Apple's advantage. According to Cook, "What sets Apple apart is the unique combination of massive unified memory bandwidth, industry-leading power-efficient performance, and deep on-device intelligence, all built around the customer experience from the ground up."
NASDAQ: AAPL
Key Data Points
Apple's continued performance depends on delivering the best user experience to its loyal customers. That's what has generated 22% to 23% sales increases for its premier product, the iPhone, over the past three quarters.
Management said that supply is constrained by the memory component and that iPhone sales growth will be lower in the fourth quarter as a result.
The market was disappointed by the lower guidance for sales and gross margin, which is expected to narrow due to rising costs. However, the main factor to watch is how the iPhone user experience continues to evolve. Apple is raising some prices to cover higher costs, and there might be some short-term margin pressure. If the iPhone continues to deliver the experience its users expect, it won't matter in the long run for Apple stock. In fact, if the stock falls on lower margins, it could be an opportunity to buy. Apple stock isn't cheap today, trading at 36 times trailing 12-month earnings. That's a sign of long-term confidence, and investors might want to wait for a more attractive entry point.
