Apple (AAPL, Financial) has been around for decades and has always been innovating, reinventing and revolutionizing the market in many ways. It is estimated to be one of the most valuable companies in the world.
When investors are just getting started with stocks, Apple is usually an attractive choice because it is a highly recognizable brand name that is deeply intrenched in many consumers' lives and has been extremely profitable in the past. It's also considered a good investment if you're trying to diversify your company with relatively low risk in an easy-to-understand consumer technology stock.
The prices of Apple products are very high, but the quality is unprecedented. They can be used for years without having any major problems, which is why people are willing to pay premium prices.
This year, Apple is trading at a steep discount to historical valuation levels because of the bearishness in the market. It's difficult to say what will happen in the coming months, but Apple will be under pressure if the market continues to slide. For the long-term investor, this is a dream, though. There are very few companies as consistent as Apple. The company is also constantly on the move, innovating new products and opening new business lines, including autonomous cars and fintech.
Apple hits a home run with the iPhone launch, but there is one problem
Apple launch events are always accompanied by much fanfare. The company has been known to create an atmosphere of excitement and anticipation before the launch of its latest products. Since its inception, Apple has never been shy of the spotlight, and its latest even on Sept. 7 was no exception.
The products announced were the iPhone 14, iPhone 14 Plus and AirPods Pro, among others. The announcement also included a software update called "WatchOS 5" and other new hardware items such as the Apple Watch Series 8 and Apple's new satellite emergency service for iPhones. A monthly emergency satellite service is launching this month and is an enticing freebie for those who get Apple's new-gen iPhones. As many predicted, the prices for the new models are very high.
Normally, customers snap up the latest iPhones despite the high prices. However, this year has been a little different. The economy has been in a tough situation this year. It does not look like things are going to change any time soon. Inflation has increased to levels not seen in 40 years, meaning people have less purchasing power and can afford less stuff than before. Many countries' inflation is nearing 10%, which can be a big burden on anyone, especially when you consider that even in the wealthy U.S., about 64% of people are living paycheck-to-paycheck, according to a 2022 Lending Club survey (other similar surveys range from 58% to 76%, so it's clear these polls aren't 100% accurate, but you get the gist).
Therefore, demand might not be as vociferous as it usually is for these phones. Apple is reportedly planning to cut down on the production of its phones, with managers telling suppliers to expect a reduced order, per a Bloomberg report. According to anonymous sources, Apple is cutting production by roughly six million units and is aiming to produce around 90 million phones this year.
Apple has been heavily reliant on the success of its iPhone line in recent years, but the company is now making a move to diversify its business. Apple is investing in new growth areas, focusing on fintech and autonomous driving. This will help reduce the company's reliance on iPhone sales, which are expected to be muted this year.
Apple is becoming a huge fintech player
Apple has long relied on the iPhone for most of its revenue. However, in recent years the company has made a concerted effort to move into new areas to diversify its income. One of the most interesting of these forays is the world of fintech. Apple Pay and Apple Wallet are both key components of this strategy. Apple Pay allows users to make payments using their Apple devices, while Apple Wallet is a digital wallet that can store credit and debit cards, loyalty cards and boarding passes. Both of these services have the potential to revolutionize the way we make payments, and Apple is in a unique position to capitalize on this opportunity. With its large user base and strong brand, Apple is well placed to become a major player in fintech.
In June, Apple released a new feature called Apple Pay Later. It allows users to pay in four installments over six weeks. You can repay the money any time and don't have to worry about interest rates. Apple's new buy now, pay later service offers heightened flexibility for customers, which will drive greater usage for the company.
Self-driving cars present a great opportunity
Apple is no stranger to game-changing technology. The launch of the iPhone in 2007 transformed how we use and think about mobile devices, and Apple has continued to innovate with each new generation of the iPhone. Now, it looks like Apple is working on another game-changing technology: self-driving electric cars. According to rumors, Apple has been quietly working on an autonomous vehicle for several years and is now in the early stages of testing. If Apple can successfully develop and launch a self-driving car, it could have a major impact on the automotive industry.
The tech giant aims to develop an artificial intelligence system for this vehicle and reportedly has been in talks with Hyundai (HYMTF, Financial) to help produce the next generation of high-tech vehicles by 2024.
Not everyone is ecstatic about this project. Some people believe Apple should stick with what they do best - creating tech products. However, the market opportunity is too good to ignore, and Apple's interest was made clear when it released Apple CarPlay.
Research and Markets anticipate that the CAGR of autonomous vehicles will be 53.6% from 2022 to 2030. The market demand is expected to reach 3.19 milllion units by 2030, with continuous increases in autonomous vehicle users worldwide. Meanwhile, Next Move Strategy Consulting data shows that the EV market will grow by a compound annual growth rate of 14.1% between 2019 and 2030 to over $212 billion by 2030.
Takeaway
Apple's "Far Out" iPhone event wowed investors on Sept. 7. It checked all the boxes, and investors were happy. However, talks about the company curbing iPhone production is spooking investors. Apple knows this, and it's taking steps to change this situation.
Nevertheless, Apple is investing in new growth areas, focusing on fintech and autonomous driving. This will help reduce the company's reliance on iPhone sales, which are expected to be muted this year. Apple's foray into fintech is already starting to pay off with the launch of Apple Pay and other services. The company's investment in autonomous driving could also yield fruit in the form of a self-driving car.
Ultimately, Apple's diversification strategy is wise and should help insulate the company from any potential downturn in the iPhone market. That should keep investors happy even if iPhone sales are muted this year.
