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Are Apple Inc. (AAPL) Stock Holders Desperate for a Driverless Car?

InvestorPlace - Stock Market News, Stock Advice & Trading Tips

In recent years, Apple Inc. (NASDAQ:AAPL) investors have become increasingly indifferent to the tech giant’s new-product debuts. The common complaint is that few Apple products these days are truly new  — usually just the latest iPhone upgrade. As a result, Apple stock no longer gets the 10% to 15% post-release bump it once did from new products.

Are Apple Inc. (AAPL) Stock Holders Desperate for a Driverless Car?
Are Apple Inc. (AAPL) Stock Holders Desperate for a Driverless Car?

Source: Shutterstock

A move into driverless cars could change that.

In an interview with Bloomberg last week, Apple CEO Tim Cook said his company is moving into “autonomous systems,” including driverless cars.

Analysts at Morgan Stanley think this could pose a serious threat to Tesla Inc’s (NASDAQ:TSLA) stranglehold on the self-driving market in part because Apple has the resources to create its own car installed with its own platform. Tesla uses a platform created by Nvidia Corporation (NASDAQ:NVDA).

Apple Taking on Tesla?

Recent signs suggest Cook is serious about going toe-to-toe with Tesla.

In April, Apple received permission from the state of California to test driverless cars on certain public roads. Later that month, AAPL joined Tesla in asking the state to alter its autonomous-car policies. Clearly, Apple is laying the groundwork for a full-on move into self-driving cars — however that may look.

To fund a driverless car, Apple is expected to increase its research and development spending by 70% over the next four years — from $10 billion last year to $17 billion by 2020. Not all of that extra spending will be devoted to developing a self-driving car, mind you.

But that kind of R&D boost tells you that Apple has a number of things cooking besides just a few more iPhones.

As Apple’s brand has become stale, AAPL stock has stagnated: though it has rallied nicely of late, it’s still up less than 14% in the last two-plus years. A self-driving car from Apple could finally give investors what they want, and create a whole new revenue stream for the company.

Of course, unseating Tesla won’t be easy.

Elon Musk’s company doesn’t need to spend heavily on R&D — it already has the technology. Last year, the electric carmaker declared that all its new cars would come equipped with self-driving capabilities, such as cameras and ultrasonic sensors that can detect both hard and soft objects. Using a “supercomputer” made by Nvidia, Tesla reportedly has the most sophisticated driver-assistance software on the market.

Meanwhile, Alphabet Inc (NASDAQ:GOOGL) and General Motors Company (NYSE:GM) also have a big head start on Apple in the driverless-car space. Google is already testing its Waymo self-driving car in Phoenix, Arizona.

 

General Motors actually has experience building quality cars; Apple has made due contracting out for building its products. Perhaps that’s why Apple stock has received only a modest bounce since its driverless intentions were revealed.

These past few years, investors have heard a lot about potential Apple projects in the works. At this point, they want to see some evidence before going all-in again. I doubt AAPL stock will get a ton of traction on the driverless-car rumors alone.

Apple Stock Needs Another Long-Term Spark

The good news is that AAPL is relatively cheap at just 13 times forward earnings estimates, though earnings per share are expected to grow a mere 7.6% in 2017. That would be a big improvement from last year’s 10% profit loss, but a far cry from Apple’s 50%-to-80% growth halcyon days just a few years ago.

Since 2012, Apple’s top- and bottom-line expansion has been far more modest amid a flurry of dependable-yet-uninspired iPhone upgrades.

It’s easy to see why Apple relies so heavily on the iPhone: It revolutionized the mobile industry. For AAPL stock to get back to better-than-average growth, it needs another revolutionary product.

With an apparent move into driverless cars, perhaps it’s finally found one.

As of this writing, Chris Fraley did not hold a position in any of the aforementioned securities.

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