As the market undergoes massive volatility in the lead up to election day, Big Tech leader Apple’s current dip presents a unique opportunity.
Oct. 29, 2020
Nobody ever said that the run-up to a presidential election amid a global pandemic in the middle of the busiest earnings week of the year was going to be a walk in the park! That said, we probably could have anticipated some pretty wild volatility, which is exactly what we got as Apple (NASDAQ: AAPL) fell 4.63% last night; and it wasn’t the only one…
Big Tech’s big losses
On Wednesday, the Dow Jones Industrial Average experienced its fourth-straight session of losses after falling 3.4%, the S&P 500 slipped 3.5%, and the tech-heavy Nasdaq dropped 3.7%. It was the market’s worst day since early June, and no wonder given that coronavirus cases are surging, there’s no stimulus plan, and uncertainty reigns.
Tech led the way with losses as the five largest tech companies shed a collective $260 billion in value over the past two days. Here’s how much in value the ‘Big 5’ have shed since Monday::
- Apple: $70 billion
- Amazon: $30 billion
- Alphabet: $50 billion
- Facebook: $40 billion
- Microsoft: $70 billion
Even with wider market sell-offs, the likes of Facebook and Alphabet are in a spot of trouble as they were called to defend their legal liability shield in Congress yesterday, alongside Twitter. For this added uncertainty, it’s understandable that investors might be worried about the implications any sanctions might have for these businesses.
However, shuffled away in the background and largely ignored by analysts, recently uncovered Apple plans could be pointing towards a potential goldmine for the iPhone-maker.
Apple’s unique opportunity
Last week it was revealed that the Justice Department’s recent antitrust lawsuit against Alphabet for search engine dominance may have very serious implications for fellow Big Tech giant Apple. The DOJ cited “public estimates” to claim that the iPhone-maker collects between $8 billion and $12 billion in annual payments from Google for having the search-engine as its smartphones’ default browser — representing between 17% and 26% of Apple’s total services revenue. Analysts then wondered if this DOJ investigation could scupper Apple’s services growth should they force policy changes that prevent the two tech giants from working so closely together.
As usual, it looks like Apple has taken matters into its own hands.
According to a report in the Financial Times on Wednesday, Apple may be developing a search competitor to Google. Apple is, for the first time, showing its iPhone search results and linking directly to websites when users type queries from its home screen in iOS 14. Whereas Apple’s built in Safari search engine currently relies on Google and Bing analytics, these prospective changes would remove any reliance on third-party engines or data. This behavior has been known for a while as people have seen the feature pop up in beta versions of iOS, while search volume being notably up on Apple’s crawler is something that analysts have been noting for months. Though merely speculation, this behavior marks a significant step-change in Apple’s in-house search development and could be the basis for a broader push into search.
Need some more conspiracy theory-esque proof that Apple’s up to something? Three years ago, Apple nabbed Google’s head of search, John Giannandrea — *mind blown*.
So, what does this mean?
Try not to dwell too much on the irony of an antitrust investigation potentially leading to greater competition between the most anti-competitive businesses out there, and instead focus on the financial implications of such a move:
- As the world’s most valuable company, and an extremely popular one at that, Apple can make its search engine the primary service for its estimated 1 billion+ active products.
- Google’s search engine business is a multibillion-dollar industry on its own, and has gone largely unchallenged until now — roughly 80% market share –, so there’s plenty of space for Apple to move into.
- Although Apple will lose billions per year at first as it loses Google’s annual payments, it will more than make up for it, in the long run, should its search engine take off.
- Apple rarely fails. It didn’t make the first smartphone, smartwatch, earbuds, tablet, or notebook, but it became a market leader in those spaces anyway.
Is Apple stock a good buy?
Let’s look at the facts:
- Apple has pushed towards services growth in recent years, removing overreliance on the iPhone, which accounts for 50% of its total revenue.
- It is now making chips for Macbook, no longer relying on Intel for production.
- It could soon create a search engine, removing any reliance on Google.
With advances in the healthcare space, services and wearables dominating across the board, and one of the most recognizable brands on the planet, any dip in Apple’s stock price should set investors’ hearts alight. Somehow, at a roughly $2 trillion valuation, it seems like Apple is only getting started.
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