Apple Inc. (NASDAQ: AAPL) fails have been rare since the company introduced the iPhone in 2007, but the recent abandonment of its decade of research and investment in an autonomous car was a black-eye for the company.
Meanwhile, its latest launch, the Vision Pro, a "spatial computing" virtual reality and video headset, has met with mixed reviews and has a $3,499 starting price.
"With a dearth of impactful applications beyond watching movies, Vision Pro clearly needs vastly improved price/performance for bull arguments for disruptive upside opportunity to be credible," said Rosenblatt analyst Barton Crockett.
What Apple needs, the analyst added, if it is to maintain its position alongside other Magnificent Seven stocks such as Microsoft Corp (NASDAQ: MSFT) and Amazon.com Inc (NASDAQ: AMZN), is to step up its artificial intelligence offerings.
Apple Shares Move South
Apple shares are down 11.5% year-to-date. It is no longer the world's biggest company. Its market cap is still astonishingly large at $2.63 trillion, but it has fallen below Microsoft, which is close to $3 trillion.
By contrast, Amazon shares are up 14.8% so far this year, while Microsoft is 7.3% higher. Meanwhile, Meta Platforms (NASDAQ: META) is up 38.3% and NVDIA Corp (NASDAQ: NVDA), the supplier of AI-powering processing units, is up 70.5% already.
"If Apple can launch inspiring new AI capabilities, that could go some way to easing the current funk," said Crockett.
Apple CEO Tim Cook said at the company's December earnings report that the company expected "breakthrough potential for generative AI," adding that it was currently investing significantly in this area.
But it spends less, said Crockett. According to the analyst's data, Meta spent $38 billion in AI R&D last year and said it expected to spend $30-$37 billion in 2024, while Alphabet Inc. (NASDAQ: GOOG) (NASDAQ: GOOGL) spent $45 billion last year, compared with Apple's $30 billion.
He added: "The portion of R&D and capex spend on AI is also probably much larger at Alphabet and Meta than Apple.
"Given its lesser investments, we suspect Apple will be hard-pressed to compete with Microsoft and Google in AI subscriptions and large language models."
Crockett concluded that Apple's main value from AI was in boosting sales of iPhones and Mac Air laptops.
Rosenblatt retained a Neutral rating on Apple stock and a $189 price target.