This fund sees big rise for Apple's stock after timely bet that it's no AI loser

By Emily Bary

Third Point's Apple position has already panned out, and the fund still sees 'room for significant upside ahead'

Third Point LLC's recent bet on Apple Inc. shares looks well timed in light of the stock's sharp rally off its April lows.

While Third Point didn't disclose the exact date when it initiated its relatively new Apple (AAPL) position, the fund led by Dan Loeb said in a Friday investor letter that it first made a purchase at some point in April. Apple shares are up 37% from their 2024 low of $165 hit on April 19, and they're up 28% from their highest closing levels seen that month.

Third Point revealed the Apple purchase in a securities filing earlier this month, but Friday's investor letter offered more details on the rationale behind the purchase - and a prediction that shares continue to sport "significant upside" from here.

See more: As Warren Buffett sold Apple's stock, these funds bought in

Managers at Third Point saw Apple shares "under-owned" by large investors before their purchase, a trend they attributed to Apple's "several years of stagnant earnings growth" and "more recent fears that Apple may turn out to be an AI loser."

But Third Point is betting that Apple will have success in artificial intelligence, enough to drive "a step-change improvement in Apple's revenue and earnings over the next few years."

The Third Point team is upbeat about Apple's ability to kickstart iPhone sales growth thanks to forthcoming AI software features. "iPhone revenue is going to see a marked improvement because Apple Intelligence features will not be backwards-compatible with existing iPhone models, creating the conditions for a forced upgrade cycle," Loeb said in the letter.

That would be a welcome development for Apple investors, given sluggish iPhone revenue-growth trends more recently.

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Apple also stands to benefit from third-party AI app development thanks to the dominance of its App Store. "We expect Apple's claim on the future economics of these apps to be substantial as it exploits its distribution advantage," Loeb said.

"If Apple can execute on this opportunity, the monetization form factors will follow and have the potential to increase Apple's earnings meaningfully," Loeb continued. Doing so would be a "direct repudiation of the consensus bear case."

And even with Apple's big recent move higher, managers at Third Point are sticking with their bet, noting "room for significant upside ahead as the magnitude of this new AI opportunity surprises."

Apple's stock is up fractionally in Friday afternoon action.

Read: Apple stands out by this analysis - but watch Amazon and Nvidia as well

-Emily Bary

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08-23-24 1451ET

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