Apple’s US$500 billion ($669.1 billion) cumulative investment in the next four years is their largest commitment yet which includes a new artificial intelligence (AI) server manufacturing facility in Texas and increased investment in Apple’s semiconductor development and manufacturing side based in the US.
This deal was announced following a meeting with Apple CEO Tim Cook and President Trump on Feb 20 in which Trump attributed the investment to his tariffs,
This included a 10% import tariff against China that sparked worry that it could bring about a potentially large impact on Apple’s financials as they manufacture about 70% of their iPhones, among other things, in China.
This investment is expected to create about 20,000 new jobs in the US and is in line with President Trump’s narrative of putting “America First” by attracting more investment in domestic manufacturing and research and development (R&D) across different sectors.
“We are bullish on the future of American innovation, and we’re proud to build on our long-standing US investments with this $500 billion commitment to our country’s future,” said Cook in a statement from the company.
This investment also stems upon Apple’s plans to diversify their supply chain after they were hit with a slew of supply chain issues in China when the pandemic came about.
Morningstar’s equity analyst William Kerwin states in his Feb 24 report that he believes that this investment is very likely to brew favour with the president which will be useful for Apple if they intend to seek an exemption from tariffs as they did so during Trump’s first term in tenure.
Kerwin also expressed great optimism in Apple’s focus in generative AI and proprietary semiconductor design expertise.
“We see Apple's silicon design as highly moaty, most recently exemplified by the new C1 cellular modem, which displaced Qualcomm in the iPhone 16e,” Kerwin states.
However, the analyst believes that despite this promise of long term growth from investment, has a rather bearish outlook on Apple’s stock in the near term as Apple’s long-term iPhone revenue growth is slowing, with headwinds from a mature smartphone market and higher competition from China.
Sales of Apple’s iPhone formed about 55% of the firm's overall revenue according to Statista in 1QFY2025 which saw a 0.8% dip year-on-year (y-o-y) to US$69.1 billion.
On the back of this, Kerwin states that Morningstar maintains their US$200 target price for the wide-moat Apple, assuming minimal impacts from tariffs.
“We see the shares as overvalued. We believe investors need rosy iPhone growth assumptions to justify Apple's valuation,” Kerwin states.
He rated the stock two stars on their Morningstar stock rating metric which meant that he believes investors are likely to receive a less than fair risk-adjusted return.
Apple’s valuation coming into the new year was sky high, trading at a price of US$250.42 (Dec 31 2024) with an elevated 32.5x forward earnings which flirted with Apple’s 2008 level of 34x when the groundbreaking iPhone was released.
While the relatively expensive price compared to their faster growing Mag-7 peers like Alphabet and Meta coupled with their dwindling outlook on iPhone sales paints a negative near term outlook, Apple could seek to benefit if they succeed in generating good sales of their newest product, the iPhone 16e.
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The iPhone 16e is the predecessor of the iPhone SE and is cheaper compared to its iPhone 16 brothers (iPhone 16, 16 pro and 16 pro max). This could help Apple tap into an audience who might opt for a second hand iPhone or an android phone and allows them to better compete in the Chinese market where they face rivalries with brands like Huawei and Xiaomi.
More importantly, more sales of the iPhone16e means more apple intelligence in the hands of more consumers which is crucial for Apple as Google, Microsoft, Samsung and other rivals are charging into the AI race.
As of Feb 24, Apple closed at US$247.10, US$47.10 higher than Morningstar’s target price.
