With new AirPod hearing technology, Apple shares sound pretty good to me

Will artificial intelligence (AI) beat natural stupidity and turn science fiction into commercial fact? Can Apple (stock market ticker: AAPL) continue to deliver healthy returns to investors in new technology?
Those are big questions for this small shareholder in the world’s biggest business by stock market capitalisation; almost $3.4 trillion (£2.6 trillion). Never mind the macroeconomics, nearly 9 per cent of my life savings are plugged into this company. That’s double its 4.4 per cent weighting in the Morgan Stanley Capital International (MSCI) world index, which many tracker funds passively follow.
Fortunately for this active investor, I first bit into Apple in February 2016, as reported here at that time. I paid the equivalent of $23.75, allowing for a subsequent four-for-one stock split. These shares cost $224 on Friday and are by far my most valuable holding, even after several bouts of profit-taking.
So perhaps I should feel sour about the somewhat lukewarm reaction to the iPhone 16, which was launched last week. New features include Apple Intelligence, a deft attempt to rebrand AI and put it to practical uses, such as summarising documents and transcribing phone calls. The Siri voice control is being overhauled to make it easier for users to talk to their phones like a personal assistant.
Critics claim that these new features aren’t enough to justify price tags that go from £799 for the basic iPhone 16 to a pip-squeaking £1,199 for the 16 Pro Max.
Enthusiasts favour other numbers to put a shine on the investment case. Dan Ives, an analyst at the wealth manager Wedbush, claims there are 300 million iPhones in use which are more than four years old and that the new features could kick off “the biggest upgrade cycle in its history”.
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As one of those thrifty types with a mouldy old mobile, I think he might be right. It could be time to replace my iPhone 11 with an even more powerful computer in my pocket.
Against all that, this is one of those successful businesses that many less successful types love to hate. Regulators around the world pursue the innovators and governments want them to pay more tax — with the European Court of Justice’s recent ruling that the company must pay €13 billion in back taxes being a high-profile example of this trend.
One anti-Apple bore I know was banging on about how they hadn’t made a breakthrough new product since the iPhone in 2007. Then his line went dead and I missed the rest. Perhaps he would have gone on to mention the MacBook Air, which went on sale in 2008, the Apple Watch in 2015, or AirPods in 2016. I continue to use all three products to this day — along with millions of other customers.
Less obviously, but more importantly, booming sales of software are proving a substitute for new hardware. During the last three months, Apple’s sales from digital services reached an eye-stretching $24.2 billion. That’s more than the combined revenues over the same period of Adobe, Airbnb, Netflix, Palantir, Spotify, Zoom and the anti-social medium that used to be called Twitter before it became X.
Real-time health monitoring via the Apple Watch, or sophisticated hearing aids via AirPods are among services that would have seemed the stuff of sci-fi fantasy a few years ago but are proving increasingly popular. I can’t be the only boomer who is happy to pay for premium products that help me to keep an eye on my ticker and to hear what you are saying.
Focusing on the financial facts, this business enjoys a gross profit margin of 46 per cent and a return on investment (ROI) of 50 per cent, according to the independent statisticians at the London Stock Exchange Group. Those numbers are evidence of the strength of the Apple brand. In plain English, people are willing to pay more here than they would for similar stuff elsewhere.
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If those margins can be sustained, shares priced at 34 times earnings could prove reasonable value — even though the soaring price has squeezed AAPL’s dividend yield down to 0.45 per cent, or less than a quarter of the 2.2 per cent income obtained when I first invested.
Back then, as now, there were plenty of pessimists — “bears” in City slang — who were sagely predicting doom. But this optimist, or “bull”, remembers a cautionary tale about perhaps the first person at Apple to focus on the maggots rather than the fruits.
That was Ron Wayne, one of three co-founders of this business, who drew the company’s original logo. It showed the inventor Isaac Newton, sitting under an apple tree. Then, in 1976, Ron sold his stake to the other founders, Steve Jobs and Steve Wozniak for $800 — that’s less than £4,000 after allowing for inflation.
This must rank as one of the biggest financial mistakes of all time. Here and now it serves as a reminder for investors to beware of premature capitulation, or selling too soon.
Perennial pessimism is an easy way to simulate wisdom about the stock market but it ain’t the way to grow wealthy. Or, as they used to say in the Square Mile, bears sound clever but bulls make money.
I intend to keep Apple as a core holding. Pip, pip!
Full disclosure: Ian Cowie’s shareholdings