Jim Cramer has been making a lot of very smart calls of late. And while he might not hit the spot every single time, I do think that his comments on Apple (NASDAQ:AAPL), in particular, could keep investors invested in a challenged name and Mag Seven laggard that may just be on the cusp of gaining its AI premium.
Indeed, Apple Intelligence may have failed to deliver, and many analysts have been quite vocal about what the Cupertino-based giant should do to catch up. From acquiring AI search startup Perplexity AI to making an investment in OpenAI, there’s no shortage of things that Wall Street thinks Apple should do. And while I wouldn’t rule out a direct investment in an AI startup, I do think that Apple is fine innovating on AI without having to rely on a deal that may entail a hefty markup.
Undoubtedly, Nvidia (NASDAQ:NVDA) recently announced its plans to invest a whopping $100 billion in OpenAI. For the most part, investors are excited about the move, but Nvidia is paying quite a lofty price for its ticket into the AI juggernaut. Of course, if OpenAI is destined to be worth more than a trillion dollars, perhaps Jensen Huang is still getting in at a decent time. Either way, I think Apple is content with its own plan and not following the rest of big tech into investments that might entail too rich a premium.
With analysts over at Jefferies downgrading shares of AAPL to underperform while reducing its price target slightly, you can only imagine the reasons for doing so.
Why the latest downgrade might not hold Apple stock back
According to Jefferies, the demand surge in the iPhone 17 might have more to do with pricing than anything innovative. They also have lower expectations for future iPhone releases, including the highly anticipated foldable model that could arrive next year.
Indeed, AAPL stock has had quite the run in recent months, but is it fair to say that the current price of admission (around $256 and change per share) bakes in an “overly bullish” outlook for iPhone? I don’t think so. And I think Cramer has it right when he encourages investors to ignore the Jefferies downgrade.
First, AAPL stock hasn’t done anything since the last holiday season. As one of the lagging members of the Magnificent Seven, the iPhone maker has pretty much stood pat as its peers rose to the occasion, driven higher by the AI boom.
Second, I don’t think there was much new material as a part of the Jefferies downgrade. Sure, you can shoot down the iPhone 17 demand surprise, if you like, but it was pretty clear when shares trended higher during and after the device’s reveal that there wasn’t a ton that was game-changing about the new device.
It’s hard to come by anyone who was blown away by the iPhone 17 keynote. In any case, the vapor chamber (that’s some pretty functional innovation), competitive pricing, interesting new color, and new thermally-efficient aluminum design were enough to convince a lot of fans to line up on release day to upgrade their aging devices.
Arguably, I’m even more impressed that demand exceeded expectations, given the iterative changes to the latest iPhone. It leads me to believe that a more profound innovation could be even more of a needle mover. Dare I say one with super-cycle potential?
It’s too early to judge the foldable iPhone
We’ll have to wait and see how the foldable fares. Until now, foldables have been quite a niche market. But if Apple is able to reinvent the foldable (iPhone Air innovations seem to point to a game-changing foldable), count me as unsurprised if the device encounters demand that’s, again, better than expected.
Finally, Apple could be in for a profound change on the software front as Siri gets that big upgrade, while AI search project Veritas looks to attract more of an AI premium on the share price. Personally, I don’t think there’s much AI premium at all, given the innovations to come.
The bottom line
In short, I think Cramer is right. Ignoring the Jefferies downgrade and focusing on the long-term horizon sounds like it’d be the smartest way to go. As Jim pointed out, other products, like Vision Pro, are rich in innovation. And it’s these products that I think might be a source of a big surprise.
After all, if Jefferies analysts are proven wrong about expectations for the foldable, they can always upgrade the stock later on. But investors will probably have to buy back at higher prices, perhaps much higher prices. Between Jefferies analysts and Cramer, I’m siding with Jim when it comes to Apple.
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