Waterworld Capital
Public Markets Commentary
Apple's weak Mac and iPhone demand and soaring costs threaten worse Q3 results and Q4 guidance than its weak Q2. IDC estimates Mac sales fell 11% y/y in Q3 after rising 13% in Q2. Counterpoint says Pro sales rose just 3% in the first three weeks while overall iPhone sales fell; lower-end models are absent this year. Foldable yields are reportedly 60%, and $100 price hikes may not offset costs. At $5 trillion, 39 P/E and 11 times sales, Apple's crowded 'safe haven' looks vulnerable. x.comÂ
Apple is a sell here because buybacks are replacing innovation while its share price is dangerously extended. It is not spending on AI, in cloud services, making robots or pursuing global WiFi; its VR, Siri chatbot and iCar efforts have failed. Its flip phone follows Samsung's, and AirPods have poor battery life and microphones. The share price has held up, but only for now. x.comÂ
Apple's balance sheet and lack of spend keep a bid under its stock whether the market rises or falls. That bid gets stronger with foldable phones that break. x.comÂ
Apple's roughly 40 times trailing and 37 times forward earnings make the shares too expensive ahead of next week's results. A short looks reasonable, though a sell-the-news reaction after earnings remains uncertain. x.com x.comÂ
Apple was hard to own into earnings, and guidance came in softer than expected. Services guidance was $30.74B versus $31.22B expected, and China $18.8B versus $19.6B. Memory and storage chip prices have quadrupled on AI demand, raising margin fears and pushing Apple to lift Mac and iPad prices up to 25%, with bigger iPhone hikes expected. Shares had surged into the print, so even a beat was priced in, and Siri AI underwhelms. Apple has mostly been rising on fluff news. x.com x.comÂ
Apple's 9% drop on weaker guidance is negligible for a long-term holder. It beat earnings, but guidance was hurt by significant DRAM and NAND price inflation and supply constraints, which also suggests the memory supercycle is not over. Apple is one of the names worth holding long term, and Alphabet's earnings gap-down recovered within days. x.comÂ
Apple was the easier short into earnings because rising memory prices squeeze its margins and price hikes pulled sales forward. x.comÂ
Apple looks unattractive at 31x next-12-month EPS as memory prices are set to hurt both its revenue and gross margins. Not investing heavily in AI capex or LLM training helps in the near term but carries longer-term risks. x.comÂ
Apple is a safe haven amid AI-stock volatility and will gain momentum if it persists over the next two weeks through the midterms. New products and another defensive day bring a momentum push toward $358, then $367 in November closer. x.comÂ
AI data-center CPUs will drive a tidal wave of memory demand, contrary to the memory bears' view. Neil Shah cites 1.5 TB of LPDDR5X per Vera CPU and 12 TB across eight CPUs, with growing agent workloads increasing CPU orchestration and state-management needs. This is bad news for Apple, too. x.comÂ