Apple’s Project Titan is still a go, says Guggenheim’s Robert Cihra

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“Irrespective of contrary news flow and even its own hesitations to date.”

From a note to clients that landed in my inbox Wednesday:

We believe Apple needs big new [Total Addressable Markets] TAMs to keep growing and we reiterate our expectation that it ultimately launches a self-driving CAR, irrespective of contrary news flow and even its own hesitations to date. We think the draws of 1) a >$2 trillion TAM and 2) tech disruption via electrification + software/AI make it too hard to resist and could open up growth for the next decade+. Apple is also investing in original MEDIA content as its other big new TAM, but we see cars better fitting its product-centric business model.

We think consensus is that Apple has pulled back on ambitions to launch a car and is now just focusing on autonomous tech to sell to others, but we see no history of Apple acting as a “supplier” of core tech to other OEMs, and its entire business model rather built on owning/controlling the end-to-end experience. Although Apple has seemed a bit noncommittal to Project Titan since 2014, we believe it is nonetheless currently testing autonomous vehicles (one of 56 companies we count holding such permits with the California DMV) and we have seen Apple file patents so far in autonomous vehicle control, guidance and navigation systems, as well as related neural networking, AR, LiDAR detection, camera and machine vision systems; but also patents in specific areas including vehicle climate control and body structure. Given the market’s sheer size and parallels to Apple’s historical MO, we remain convinced that it will inevitably be drawn into launching its own car.

Tim Cook has called autonomy “the mother of all AI projects” and we believe Apple has one of the strongest general AI/ML development teams going, supported by its overall R&D budget we forecast at >$14B in FY18E (tripling over the past 5yrs). A lot of work is in the Cloud (e.g., Siri) but we believe Apple’s particular strengths are rather in EDGE computing for on-board AI/ML (e.g., A-series processor with Neural Engine, Face ID, Core ML for on-device inference). Apple recently hired away another high-profile AI engineer from Alphabet (GOOG), Jaime Waydo, lead systems engineer for Google’s Waymo self-driving cars; and, we see the move following, not coincidentally, its April hiring of Google’s former SVP Engineering, John Giannandrea, to become Apple’s new overall chief of machine learning and AI strategy.

Buy rating and $215 price target unchanged.

My take: I think he’s spot on. Makes me wonder about the reports that said otherwise.