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Will Apple Get its Mojo Back?

Let’s talk about Apple, Inc. (AAPLResearch Report). Specifically, let’s talk about innovation in high-tech, because Apple has been a leader in the field for as long as I can remember. This is the company that brought us the computer mouse, the first point-and-click GUI operating systems, and the iPod, iPad, and iPhone devices. Apple products have, in a very real sense, altered the way we interact with computers.

The great innovations, however, all seem to date back to before 2011 – the year that Steve Jobs, Apple’s founder and an undoubted genius in the fields of tech and marketing, died. Did Apple’s innovation die with him? Was Apple really just a one-man show, albeit with a gigantic supporting cast? Or will the company find and release a new disruptive technology?

The current CEO Tim Cook took over during Jobs’ illness, and since 2011 he has developed a reputation as something of a “caretaker” leader. Under his guidance, Apple has been enormously profitable; it was the first publicly traded company to break $1 trillion in market cap, back in August 2018, and even after the last three months of falling stock price, Apple is still valued at $748 billion. Apple’s services segment – the device upgrades, the app store, iTunes, etc. – is turning into the company’s cash cow, even as the maturing smartphone market cuts into new iPhone sales.

Cook has tried to guide the company toward new products. The Apple Watch came out in 2015, and while it is a sweet device, it has failed to truly catch on. The device is costly, and early versions required a nearby iPhone for proper functioning. Current versions are less tethered, but the overpriced/underpowered reputation has stuck to the Watch. The AirPods were Apple’s next potential groundbreaker, and had a better reception, but they really didn’t change much. They’re earbuds. We all know about earbuds. The AirPod wasn’t revolutionary. Popular, cool, and profitable; but hardly a disruptive technology.

Enter AR

The rumor mill is churning, though, and it may be grinding out the news that we’ve been waiting for. Reports have circulated since April of 2018 that Apple is planning to release an AR/VR product – most likely a headset of some type – by the end of 2020. Details are sparse, but are backed up by several definite facts.

Laying the Groundwork

First, Tim Cook has long been known as a fan and outspoken proponent of augmented reality technology. He’s spoken on the subject, described it as potentially more important than the iPhone, and has given his opinion that AR holds the greater potential. In 2016, Cook said of AR, “I think AR is big and profound. This is one of those huge things that we’ll look back at and marvel at the start of it.” Early in 2017, he added, “I get excited because of the things that could be done that could improve a lot of lives.”

Second, Apple has, over the years, registered numerous patents in the AR/VR field. Apple holds a 2008 patent on a google-style “personal display system,” as well as another from the same year for a glasses-style “head mounted display system.” Patents from 2010 and 2012 relate to motion sensors, a technology necessary to translate head motions into new visual perspectives in the display. A 2011 patent filing relates to AR features in mapping apps, while a patent granted in 2017 deals with the tech needed to recognize objects in the environment prior to creating overlying AR in the display. While Apple has not yet translated these patents into products, the company is clearly positioning itself for ownership – literally – of the AR niche.

Related to the patent activity, Apple has also been bringing AR experts onto the team. Apple has hired personnel away from Microsoft’s competing HoloLens project, and has also brought on board experts from Facebook Oculus, Magic Leap, and even NASA. Those patents didn’t come from nowhere; Apple has been quietly assembling a team – numbering into the hundreds – capable of conceptualizing, and hopefully bringing to life, the next generation in AR.

Finally, when Apple hasn’t been able to patent an idea or make the right hire, its massive cash holding has allowed it to just buy up emerging AR/VR companies. Apple purchased RealFace, a company working on facial recognition technology, in 2017. It picked up Emotient, which develops facial expression analysis for AI and machine learning, 2016. Faceshift, which works with facial expression capture technology, was acquired in 2015. Also in 2015, Apple picked up Metaio, a company that developed app technology to allow users to see historic views of modern landscapes, such as the Berlin Wall.

The pattern to all of this is clear. Apple is acquiring the developers of the tech needed for computers to read, manipulate, and display AR. It is building, in-house, a team of experts capable of working with that tech, and building from it. It is laying the legal groundwork to ensure ownership of this new field. And it’s doing all of this under the guidance of a CEO who truly believes in AR technology. For everyone who wondered if Tim Cook could release a groundbreaking, disruptive technology the way that Steve Jobs did, we may soon have a definitive answer.

The Game Changer

Wearable, wireless AR/VR technology has the potential to fundamentally change the way that we interact with computers. I’m talking about a change on the order of the first graphic user interface, or the advent of touch screens. Remember Tom Cruise in ‘Minority Report,’ shifting images around in mid-air? This is what AR tech is aiming at.

This sort of disruption to existing tech is what Apple has always been about, from the earliest personal computers (I cut my writing teeth on a iic in a better, vanished time), to the first Mac and the introduction of the GUI and the mouse, to the iPod and its offspring. Even the Apple Watch, despite its flaws, was an attempt in this direction. If Apple can pull this off, we’ll see an explosion in the stock like nothing you’ve ever dreamed of.

We’ll also see applications that can truly impact your life. Imagine a set of AR glasses, lightweight, resembling a simple set of reading glasses, but projecting your computer screen right in front of you, and capable of registering your head and hand motions as you manipulate and observe that screen. Image how that would change an online store, or a mapping app, or the heads-up display in your car. Like I said, it’s a potentially disruptive technology. It’s not often we can see those coming.

Where is Apple Now?

So before we step into that brave, new world, let’s make sure that we know where we are by taking a good look at AAPL stock as it stands today.

Apple holds a ‘Moderate Buy’ rating on the analyst consensus, based on 17 ‘buy’ reviews and 15 ‘holds.’ AAPL closed at $157 per share on Dec 31, down 32% from its peak price of $232 on Oct 3.

Don’t count it out, however; AAPL shares were up on Dec 26, gaining just over 7% in that day’s trading, and holding that gain through year’s end. The gain was part of a general post-Christmas market rally, and AAPL’s gain was in line with the other FAANG stocks: Facebook (FB) gained 8%, Amazon (AMZN) gained 9%, Netflix (NFLX) was up 8%, and Google parent Alphabet (GOOGL) added 6%. The FAANGs led the NASDAQ index, which finished the day with an overall gain of 5%.

AAPL’s average price target, $215, gives the stock a 36% upside when compared to the $157 current share price. This suggests the stock is heavily undervalued.

See AAPL Price Target and Analyst Ratings Detail

See AAPL Price Target and Analyst Ratings Detail

Top market analysts agree that Apple appears oversold. On Dec 20, Laura Martin (Track Record & Ratings) from Needham laid out the bull’s case for sticking with AAPL: “We retain our BUY rating because we believe AAPL is the least expensive way to participate in several inexorable long-term economic trends: a) growing consumer wealth globally; b) consumers’ shift to mobile; c) rising stickiness of AAPL’s ecosystem owing to new products and services, which drives upside to AAPL’s lifetime value per ‘subscriber:’ and d) a pristine balance sheet that can withstand virtually anything.” Her price target is conservative, at $200, but still gives the stock a 26% upside. Martin is a five-star rated analyst, with an 83% success rate and 25% average return when recommending AAPL.

On December 21, Morgan Stanley analyst Kathryn Huberty (Track Record & Ratings) weigh in, and agreed that Apple is poised for gains. “iPhone declines are perhaps not as weak as Apple’s stock price, or sentiment, implies. [M]uch of this iPhone fear is already baked into expectations.” Huberty believes iPhone sentiment is bottoming and set a $236 price target on Apple shares, implying a robust 49% upside. Like Martin, Huberty is a five-star analyst, with a record of success with AAPL stock. Her reviews are profitable 64% of the time, with a 20% average return.

A Positive Outlook

Apple stands in a position of strength. The company is flush with cash, and despite slowing sales, the iPhone lines are popular sellers. The services segment is strong and growing, providing steady revenue that compensates for the slower growth in the smartphone market. More importantly, however, the company, especially CEO Cook, has a made a large stake in emerging AR technology, and is preparing to take it to the next level. Anything can happen.

Enjoy the Research Report on the Stock in this Article:

Apple, Inc. (AAPL) Research Report

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Michael Marcus
Michael has been writing online content for nearly 15 years. Starting out in the SEO field, Michael has shifted in recent years to the financial sector, using his academic background in political science to draw connections between current events and the financial markets.

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