Jason's World

Apple has long counted itself along the Magnificent Seven group of stocks that has powered the stock market over the past few years, consistently boasting the title of the world’s most valued company by market capitalization. However its more recent performance has been less than impressive, being a laggard amongst this elite group of stocks, as both companies struggle in China, the world’s second largest national consumer market. 

Once renowned for reliably producing second-to none products that upended entire industries, Apple recently encountered a significant setback in the electric car domain. In 2014, Apple undertook a massive project-Project Titan, a bold initiative to develop a fully self-driving car, allocating $10 billion for its development over 10 years. The project, which involved as much as 5,000 employees in 2018, aimed to directly compete with Tesla for primacy in the field of next-generation cars. Despite the massive budget, it only produced 66 cars-and the program was ignominiously shuttered in late February.

The shuttering of Project Titan was a major setback for Apple-the stock was down by as much as 8% in the weeks following the news. It also lost its title as the world’s most valuable company, being valued at well under $3 trillion, and overtaken by Microsoft.

The unfolding of Project Titan illustrates a profoundly mistaken approach to the project. Looking at the personnel choices at the top alone would reveal a rather chaotic picture. Initially the program hired solid players from the car industry, like Mr. Johann Jungwirth, originally from Volkswagen. By 2016, even though the hype around the project was still around, it was hinted that there were doubts about Apple making its own car, reflecting the fact that building a car requires a specialized knowledge that Apple did not have-a fact that auto industry big shots warned Apple about around that time. Apple appeared to hedge its bets, suggesting a pivot towards developing autonomous vehicle software, although they insisted that they wanted to develop a car of its own. In its later stages the people that led the project had little connection to the car industry-John Giannandrea, who led the project starting in late 2020 was a software engineer-this suggests that they clearly did not know what they were doing with the project.

Apple’s main goal with Project Titan was to eclipse Tesla. However, despite significant investment, despite being a company far bigger than Tesla, the project yielded no tangible results. The high-profile automotive experts Apple recruited failed to advance the company’s ambitions in this venture. And it was because of the fundamental aim of Project Titan.

Apple had a rather misguided goal from the very beginning. It set its sights too far attempting to build-or rather, invent-a full-blown self-driving vehicle with no human intervention required whatsoever, or, a level 5 on the SAE automation classifier. Why “invent”? Even Tesla’s FSD only manages a Level 2, and no cars are in mass production that are level 4 or above, 10 years after the beginning of Project Titan. The fact that cars with even some degree of autonomy were mainly a dream when Project Titan was announced suggests that Apple was aiming to invent something entirely new, which is in fact counter to many of the principles that made Apple great in the first place. Here’s a lesson in history for Apple: It did not invent the personal computer, it did not invent the graphic user interface (GUI), or the MP3, or the smartphone, or the smart watch. Apple’s real specialty is taking an existing product and making a version that surpasses everything else in the field. By attempting to build a full-blown self-driving car, Apple broke with its tradition, and paid the price. Even the initial proponents of Apple’s car project did not go so far as to envision a fully self-driven vehicle, but they were carried away by the ultimately-proven-fantastical idea that anything is possible with the right amount of investment and manpower.

Meanwhile, while Apple was relentlessly pursuing its self-driving vehicle boondoggle other companies have been laser-focused on AI, where Wall Street’s attention actually is. For example, Nvidia has nearly doubled since the beginning of the year, and Microsoft, which has released its Copilot chatbot to the public in January, has risen 12% since the beginning of the year, surpassing Apple in market cap and leaving Apple, which once led the world in valuation, behind with Tesla as the two laggards amongst the Magnificent Seven.

Consequently, Apple’s decision to pivot from Project Titan to AI could signal an opportune moment for investors-it’s reputation of revolutionizing existing products has not been significantly tarnished, yet. While its foray into AI comes later than some competitors, Apple’s history of transforming existing product categories into something extraordinary suggests it could once again surprise consumers and investors alike with a second-to-none AI offering.

Apple’s future in China is also likely to be faced with more challenges as the worsening of US-China relations produce political pressure on American businesses with Chinese operations, and as China’s economy loses the luster that it has had over the past decade with an aging population, declining productivity growth, decreasing access to American and European markets, declining property prices and heavier government intervention. However, while Apple falters in China, it must be noted that there are major opportunities for Apple that have yet to be exploited. Just next door to China is India, which just last year took the crown of world’s most populous country from China, and its economy has grown; faster than China’s as of late. Despite Apple dominating the Indian smartphone market in terms revenue, Apple has a lot of room to grow within the Indian market-it just opened two stores in India slightly less than a year ago. As India’s economy and population continue to grow, it will be the most promising market for Apple, bar none. As India’s middle class grows, it is spending more on consumer staples, which include phones.

Apple’s recent focus on AI and its opportunities for future growth make it an appealing long-term investment opportunity, despite the many hurdles the stock faces now. Its relatively low PE ratio among tech companies and the potential hype that its AI products may bring provides excellent opportunities to look forward to.