Investing

Apple’s Multibillion Dollar Microsoft Heist Actually Worked

Austin Smith

Published: June 23, 2024 6:55 pm

Apple (NASDAQ: AAPL) recently announced Apple Intelligence, pushing its shares up roughly 10% over a few days and briefly surpassing Microsoft (NASDAQ: MSFT) as the most valuable company on earth. This surge is attributed to the AI-driven excitement, similar to Microsoft’s investment in OpenAI, but Apple achieved this without any direct investment in AI firms. Apple’s strategy of being a fast follower and integrating AI into its ecosystem has proven highly effective, showcasing its ability to gain market value without the need for significant upfront investment.

Transcript:

Apple recently announced Apple Intelligence, pushing shares up roughly about 10% across a few days.

And it actually briefly passed Microsoft to once again, retake the crown of the most valuable company on earth.

Although that’s been a very intense battle with NVIDIA, Microsoft, and Apple.

So Austin, my question for you is how has Apple managed to pull off briefly, albeit retaking this crown?

Yeah, you know, it’s kind of interesting.

The common denominator here, of course, with all these companies is AI.

You know, it’s been the theme of the last few years in the markets.

We’ve all seen what’s happened with NVIDIA.

But Microsoft and Apple themselves are getting major AI tailwinds.

And what’s really interesting here is Microsoft famously invested roughly $13 billion in OpenAI.

Now, let’s be clear, that’s $13 billion very well spent.

And it may very well go down as the greatest venture investment of all time on a total return basis.

Not just from the appreciation of their position in OpenAI, but the appreciation of their own shares from integrating AI into their suite of products.

A fantastic investment by all measures.

But in many ways, Apple might actually have done Microsoft one better here.

In the last month, shares of Apple are up almost 12 percent, and almost all of that is a direct result of their Apple Intelligence launch.

On the day of their Apple Intelligence announcement, shares were up over seven percent and they continued to run in the following days.

So if you attribute that 10% market cap gain simply to that announcement, which is very fair to do, it’s worth over $300 billion.

So what’s incredible is that Apple, unlike Microsoft, didn’t have to invest a penny in OpenAI.

They got $300 billion in free market cap gain without selling a single incremental product and without investing a single dollar into OpenAI.

They haven’t made any investment here.

So they picked up $300 billion of free market cap gain simply from this integration.

Now, this is not to say that OpenAI doesn’t benefit from this relationship. They will too.

There’s a lot of value being present in Apple’s ecosystem.

Google famously spends over $20 billion each year to be the default search engine here.

So there is a lot of value being exposed to Apple’s audience. It’s not completely a free lunch here.

But the point is, I think Apple did exceptionally well here.

If you look at all the gains that Microsoft has accrued, they were early.

They made a fantastic venture investment.

But Apple didn’t really have to do anything to earn this $300 billion in market cap.

They didn’t have to cut any additional checks.

They didn’t have to sell any additional phones.

This is all based on future expectations of the iPhone 16 launch and what this implies about driving demand there.

But I have to say, Microsoft cutting $13 billion, Apple not spending a penny and still picking up $300 billion in market cap, not a bad way to go.

Yeah, definitely.

I think it’s a fantastic point to look at how Apple’s done this.

And part of it is they have the luxury to wait for AI to be developed to a certain place where everyone else has to spend their money for this gold rush.

Apple has the users already. They’re not losing market share.

So they’ve been able to pick their spot.

I think you elucidated really well how in the chess game of the largest tech companies, Apple’s actually played AI shockingly well.

Apple has long been considered the best fast follower in the tech industry.

And they were never the company to come up with the first pair of wireless headphones, but the AirPods have gone on to become a multi-billion dollar product line by waiting and then integrating it in their Apple way, right?

So Apple has become the biggest company on earth by becoming an intelligent and careful fast follower.

And they ran their playbook again here and it looks like it really paid off.