The next iPhone is boring. Apple needs to revolutionize again to save its stock.

By Cody Willard

CEO Tim Cook has been an admirable leader at Apple, but he is no Steve Jobs

Apple probably needs fresh blood to introduce breakthrough innovations.

Since the death of Apple (AAPL) co-founder Steve Jobs in 2011, the tech giant’s innovation can be summed up in one word: “incremental.”

Apple’s latest products include the iPhone 16, a new Apple Watch, improved AirPods, and an improved Mac Mini. Unfortunately, don’t expect much improvement in these offerings, which will be unveiled at the company’s “It’s Glowtime” event on Monday.

Importantly, Apple’s latest products will likely be the first to feature Apple Intelligence, which the company unveiled at WWDC in June 2024. We don’t expect any groundbreaking new products or product changes this time around. The iPhone 16 will likely have better cameras, slightly better battery life, a slightly better screen, and perhaps some cool AI features (including an improved Siri).

So far so good, but at some point Apple needs to really start innovating if its stock is going to outperform. Especially given the stock’s current valuation (33x estimated 2025 earnings), it’s concerning, and it’s possible that Apple’s stock could be sideways for years if it doesn’t get back to double-digit revenue growth soon.

Why are we so unsure that the iPhone 16 and Apple Intelligence will lead to incredible growth for Apple in the next year or two? Let’s break it down:

First, Apple needs to grow its ecosystem beyond the platform Jobs built. Jobs was one of the greatest CEOs, technologists, and leaders of all time. Jobs created almost the entire Apple ecosystem we know today, and that ecosystem has fueled Apple’s success ever since.

Apple products launched under Jobs’ leadership (Mac, iPod, iTunes, iPhone, and iPad) continue to generate the vast majority of the company’s revenue and profit (90.56% of Apple’s Q2 2024 revenue, to be exact), and current CEO Tim Cook has had the good fortune to nurture and monetize that ecosystem ever since.

While the promise of what Apple Intelligence could be is incredibly exciting, it’s questionable whether Apple will build a revolutionary AI-based iOS anytime soon. Apple doesn’t have the computing power to produce truly amazing AI on its own, which is what Amazon.com ( AMZN ), Microsoft ( MSFT ), Alphabet ( GOOGL ) ( GOOG ), Meta Platforms ( META ) and others are racing to do. Instead, Apple is essentially relying on third parties to build front-end models that it can then incorporate into its devices.

This is a major change for Apple, as it will no longer control the underlying technology that powers its products. For decades, Apple was the platform on which all other apps were built; now Apple risks making its iOS just another “app” built on OpenAI GPT or Google Gemini or Meta Llama AI’s operating system.

If Steve Jobs were alive today, Apple would already be working on another revolutionary product that would make a stunning impression on us.

Second, Apple probably needs fresh blood to reignite its groundbreaking innovation. Cook has certainly done well for Apple shareholders since he took over (the stock has risen about 17x under Cook’s leadership). But again, that’s mostly because Cook has simply done well at managing the platform Jobs has already built. If Apple is to remain as dominant a company over the next decade as it has been over the last, it needs to come up with new form factors and new services that people will go crazy for.

Jobs famously said, “People don’t know what they want until you show it to them.” Apple’s next “wow” factors could include stylish, lightweight, and “cool” VR/AR glasses and headsets (like Meta), robots (like Tesla’s (TSLA) Optimus), implantable computer interfaces (like Neuralink), holographic displays, or other mind-blowing devices. If Jobs were alive today, Apple would already be working on the next revolutionary product that would blow us away.

Third, Apple needs to adapt to Jobs’s insane focus on perfectionism and quality. Jobs was probably a perfectionist to a fault, but he made Apple release some truly amazing and beautiful products that everyone wanted to get their hands on. Apple has lost some of that perfectionist spirit, as recently demonstrated by its clunky and clunky Vision Pro headset. We think there’s no way the Vision Pro would have launched in the form it does if Jobs were still at the helm. While the Vision Pro has some amazing features, it’s heavy (about 1.5 pounds), awkwardly sized, and the dongle battery is attached to the headset with a cable! When you factor in the $3,500 price tag, it’s no wonder Apple reportedly scaled back production of the Vision Pro earlier this year.

Apple as a company and as an investment will probably be okay for the next few years (I’ve owned the stock since it traded at a split-adjusted 20 cents in 2004). But it’s my second-least favorite Magnificent Seven stock (Microsoft is our least favorite). If Apple were trading at a lower valuation, the company’s AI potential might be more exciting, but at a futures P/E of 33x, Apple is just about manageable for now. Perhaps at some point in the next decade, Apple’s leadership will recapture Jobs’ spirit with an AI application and return the company to its former glory.

Cody Willard is the Chief Investment Officer of 10,000 Days Capital Management and publisher of TradingWithCody.com, a subscription trading newsletter offering real-time trading alerts. Willard and/or 10,000 Days Fund LP were net-long AAPL, META, NVDA, AMZN, GOOG, TSLA and had puts on MSFT at the time of publication. Positions subject to change at any time without notice.

More: Apple iPhone 16 Event Here. What Investors Need to Know.

Also read: Apple’s AI-driven “supercycle” begins

-Cody Willard

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09-14-24 0949ET