Apple Inc

Apple is positioned to benefit from the rapid adoption of artificial intelligence and digitization, which is driving exponential demand for computing power and efficiency tools. The company is highlighted for its hardware ecosystem and services, which are integral to this trend. The manager notes that Apple, along with Amazon, is trading at reasonable valuations given its strong prospects, making it a selective investment in the technology sector. This strategic positioning allows Apple to capitalize on the ongoing digital transformation and maintain a competitive edge.

Apple is mentioned in the context of rising prices for laptops due to increased costs in the semiconductor sector. However, there is no explicit directional argument made about the company's future performance or valuation.

Apple exemplifies a company that has historically doubled down on growth rather than maximizing after-tax earnings, even when out of favor. This approach has often resulted in a valuation that appears expensive based on traditional metrics but is actually very cheap when considering its earnings power. The ability to reinvest cash flow at high incremental returns is rare and a powerful driver of long-term value creation. As the economy slows, companies like Apple with insulated growth runways are expected to emerge even more valuable, positioning us well for a strong recovery.

We believe Apple remains a strong investment due to its robust competitive position and growth potential. The company has consistently demonstrated its ability to innovate and capture market share, which supports our confidence in its long-term earnings trajectory. Despite recent performance challenges, we view the current valuation as an attractive entry point for long-term growth investors. Our conviction in Apple's business model and market leadership underpins our decision to increase our position in the company.

While Apple has overlapping network effects and powerful switching costs that create strong current pricing power, we have grown concerned that Apple’s high margin services business may be undermined by price-shopping AI agents that evade Apple’s large app store toll. Additionally, the company’s supply chain in China would cost more in time and money to replicate in the event of a war than we previously understood. These factors lead us to believe that Apple faces significant long-term risks to its pricing power.

Despite being a detractor in the quarter, we view AAPL's strong results, including record iPhone revenue, as indicative of its underlying strength. The current investor sentiment, which is focused on rising AI costs, does not align with the fundamentals of AAPL's ecosystem strength and pricing power. We believe that AAPL's capital discipline and continued iPhone momentum support our long-term thesis, highlighting a disconnect between market perception and the company's solid execution.

Apple continues to expand its manufacturing capacity in India, undeterred by relatively higher tariff levels. iPhones have now become India’s most valuable export, with $23 billion worth of devices shipped out in 2025 alone, with India now manufacturing around 1 in 4 iPhones. This growth in manufacturing not only highlights Apple's commitment to the region but also positions it favorably within the global supply chain, leveraging India's emerging market potential.

The letter discusses the performance of the Core Portfolio and mentions Apple among other companies that were strategically trimmed due to their higher price-to-earnings ratios. However, there is no specific argument made about Apple's future performance or valuation.

We initiated our Apple investment in 2016 and elevated it to a core holding in 2018, the same year the company unveiled its redesigned 13-inch and 15-inch MacBook Pro models. Under Tim Cook’s far-sighted leadership, Apple has continually redefined innovation across hardware and software. Today, Apple’s ecosystem powers about 2.4 billion active devices, bolstered by a rapidly expanding subscription services base. This approach has supercharged customer engagement and spending. In fiscal 2025, the high-margin, stable subscription services segment accounted for roughly 42% of total gross profits, up from about 39% the previous year. We expect rising revenues from new product launches, services, margin expansion, and share repurchases to fuel approximately 10% annual growth in earnings per share over the next several years.

Apple contributed to performance as adjusted earnings per share grew +13%, driven by +15% revenue growth in its services business, which accelerated compared to last quarter and generated over $100 billion in revenue over the past 12 months. Further, the Company guided to strong double-digit revenue growth in its holiday quarter, driven by double-digit growth in iPhone revenues, as it experienced strong demand after launching several new models in the previous quarter. Apple's multi-decade consistency in executing on hardware and software upgrades, along with increasingly proprietary silicon content, provides consumers with a dependable, high-quality user experience that should continue to drive adoption and trade-up.