Companies

Apple’s fall hardware event featured the new iPhone 15 family and updates to Apple Watch at prices unchanged from a year ago. While most of these updates were incremental, they’re enough to attract the 400m iPhone owners with phones more than 4 years old, which should return Apple to revenue growth in the December quarter. Most impressive was the addition of spatial photo and video capability on iPhone 15 Pro models, which lays the foundation for Vision Pro demand, due out early next year.

Shares of AAPL have recently declined by about 3% based on investor concern that an expanded iPhone ban for Chinese government employees and its affiliated companies will dampen Apple's sales. My math suggests the worst case scenario is a 1% negative impact on Apple's overall revenue in 2024. The bigger question is what's the long-term impact of the US and China moving in a different direction? The answer: Softness in China can be offset by strength in India.

NVIDIA reported its second consecutive blockbuster quarter and guidance showing the AI theme is for real. Investors largely shrugged off the impressive results given expectations were high and the NVDA investment focus is shifting to how persistent the company's growth will be over the next few years. I believe they will continue to own the pole position in AI computing hardware at least through 2025. After that high margins will like bring in chip competition.

The Supreme Court rules that Apple does not have give developers the option to steer payments outside of the App Store. That means that status quo of the App Store business model which should generate about 20% of the company's operating income this year is intact. The ruling also keeps Apple one step ahead in Washington's pursuit of big tech regulation.

Shares of AAPL traded down 2% after posting what was essentially an in-line June quarter. Guidance for September calls for a 1% y/y decline in revenue compared to expectations of 1% growth. Those details water down the most important dynamic of the quarter: the installed base of active devices hit an all-time record. That means Apple's ecosystem is expanding which is key for long term investors. This growing base should power revenue growth acceleration in December and for full year 2024.

June quarter results showed that Search is still king at Google despite investor concerns that Bing would steal some of its momentum. In the next year, I expect Google to show the fruits of seven years of investing in AI to create a new Search experience that will increase engagement and revenue growth, a similar dynamic to what we saw a decade ago with the shift from desktop to mobile.

Meta's year of efficiency over, and it’s now about years of more efficient growth. The company's cost cutting is done, and the ad market has stabilized. Meta is shifting its focus to investing in AI and the metaverse, funded by a solid core business and DAU's that are growing 4% y/y, ahead of last years 3% pace. All of this should yield earnings growing faster than expenses through 2024. Deepwater is invested in META.

Tesla's June quarter results were solid, as expected. Shares of TSLA traded down by 4% off management comments that implied auto gross margins will be down slightly in September due to production downtime for retooling and other investments. The hyper focus on near-term margins overlooks the long-term value the company is creating by aggressively investing in new models, production capacity, batteries, and FSD, all of which will lead to increasing margins over time.

At Deepwater, our mission is to profit from where the world is going. This week, Gene got a preview of that future with a demo of Apple’s Vision Pro mixed reality headset. In this episode of Deepwater TV, Andrew and…

Apple made good on the rumor mill, announcing its first spatial computing headset, Apple Vision Pro. Available in early 2024 and priced at $3,499, it is at least $500 more expensive than most were expecting. The keynote left me with more questions than answers. After an hour-long demo my view of the product expanded. Spatial computing is a big deal. Yes, it's very expense and, yes, the selection of apps will be limited early on — but those barriers will disappear over time. Spatial computing is just too powerful not to go mainstream. I believe it will account for 10% of all Apple sales in 2030.

   

It's been eight years since Apple jumped into a new product category. On June 5 that will likely change when Apple is expected to preview its $3,000 developer version of a mixed reality headset at WWDC. Many investors are skeptical about the prospects of the device given headsets are currently a solution looking for a problem. I believe the trend of more immersive consumer tech experiences will continue, which should pave the way for a robust headset market. By 2030, I believe the wearables/glasses segment could account for 10% of Apple's sales (assuming they don't release a car), a business similar in size to Apple's Mac and iPad businesses today.