Apple Inc. has primarily been a hardware company over the years. From the Mac to the iPods to modern iPhones, innovation focuses on hardware devices. That said, Apple also has software in the form of iOS that is unparalleled in the industry. Yet the apps leave a lot to be desired and focus on giving users what they need, rather than innovating and designing software that moves the industry.
The company’s shares are currently trading at around $255. This equates to a valuation of 3.86 trillion. A $10 increase in the stock price would bring the company’s valuation to $4 trillion, making it the first company ever to reach this milestone. Investors are divided over whether this high valuation is justified, and, like the company itself, seem confused about how Apple will improve its software game.
Take Apple Pages for example. Word processing software is used by millions of people as part of their daily work. But even on Apple’s own devices, they’re not the best word processing app. The same goes for the maps, voice memos and book apps. To make matters worse, Apple is struggling to launch AI features on time while its counterparts, especially in China, race ahead.
It’s been three years now and Apple has hovered between $370 billion and $400 billion in revenue over the past twelve months. If it wants to justify a $4 valuation with such stagnant revenue growth, it will have to do more than just launch another good iPhone. For many, the answer lies in the company’s software. As much as we’d like to complain about Apple’s software efforts, we can’t deny that this is also the area where Apple can show the most improvement. We believe that now is the time to demonstrate that improvement, as companies rush to deliver AI features to improve productivity and workflows.
Apple’s AI plans for 2025 give investors some hope. The company plans to roll out several Apple Intelligence features that should attract attention. The top priority seems to be Siri, which hasn’t lived up to the hype over the years. If there was ever a time for Siri to help Apple device owners, it’s now! Powered by AI, the software is getting a new design and thanks to a better understanding of natural language, it should now be able to perform better. Enhancements like ChatGPT integration, summaries, and priority notifications won’t necessarily help Apple make more money, but they should improve the user experience at a time when customers may be overwhelmed by the new features on their devices.
While we’re not bearish on Apple, we think the hardware segment has limited upside. The company has been neglecting the software side of the business for quite some time and now seems like the best time for the company to make software a priority. With Apple’s intelligence, the software could get a rework, which could fuel future growth and our bullish thesis on the stock.
