In this week's Opportunity Mining, let's take a look at $Apple (AAPL.US)$ , the leader of "The Magnificent Seven".

After the market turbulence in August, Apple topped the market with a valuation of $3.48 trillion, followed closely by $Microsoft (MSFT.US)$ and $NVIDIA (NVDA.US)$ .

In June 2024, during the Apple Worldwide Developers Conference (WWDC), Apple officially announced its collaboration with OpenAI to integrate ChatGPT into the new iPhone models. This caused the company's stock price to surge past the $200 mark.

After three months, the AI wave has come to be tested.

On September 9 local time, Apple will hold a product launch event, where the first iPhone 16 with built-in AI features will be unveiled. New models of iWatch and AirPods will also be introduced during the event.

Will AI trigger a super upgrade cycle?

The iPhone 16 will come with ChatGPT-4o integration alongside the iOS 18 system upgrade. According to The Guardian, the first version of iOS 18 will debut alongside the iPhone 16 in September, with AI features expected to be officially rolled out to users in mid-to-late October. The initial AI features in the beta version include new writing tools, message reply suggestions, email summary generation, and call transcription.

Apple has stated that AI features require robust hardware support and thus cannot run on older devices. Among the currently released iPhones, only the iPhone 15 Pro and Pro Max meet the requirements. This means consumers might upgrade to a new device to use new AI features.

Wall Street seemed optimistic about this. In a research report released at the end of August, Citigroup named Apple the "top AI pick," replacing Nvidia.

Citigroup noted that AI development can be divided into three stages. The first two stages involve building the infrastructure, starting with chips and servers, then networks and storage. Apple is expected to dominate the application stage, where "smaller AI models" for consumer use will be widely integrated into devices.

The analyst said that it will take time for consumers to test and appreciate the enhancements in daily life. With its leading position in the premium smartphone segment and seamless software-hardware integration, Apple is positioned to achieve this.

Wedbush has noted that roughly 300 million iPhones globally have not upgraded in over four years. The release of the iPhone 16 could mark a historical upgrade cycle, pushing Apple's market value above $4 trillion.

Third Point, a hedge fund managing over $10 billion, said there is still substantial room for growth in the future, given the immense scale of AI opportunities.

In addition to partnerships, Apple has been pursuing direct investment in OpenAI.

According to The Wall Street Journal, Apple and Nvidia are in talks to invest in OpenAI as part of a new fundraising round that could value the ChatGPT maker above $100 billion. Apple will gain an observer seat on OpenAI's board if it materializes.

However, it might be worth noting that Warren Buffett has significantly reduced his holdings in Apple.

$Berkshire Hathaway-A (BRK.A.US)$ sold 389 million shares of Apple in the second quarter, nearly half of its first-quarter holdings. This also marks the third consecutive quarter that Buffett has sold Apple stock.

The reason for the reduction was not disclosed, but some believe "The Oracle of Omaha" may have some concerns about Apple.

Impact of new product announcement

Historically, Apple's stock price has often declined following the release of a new iPhone. New models are typically criticized for lacking innovation, which can drag down the stock price. Additionally, investors who 'buy the rumor' before the event often choose to 'sell the news,' further contributing to the decline.

However, the stock price typically rises by extending the timeline to 60 trading days after the launch event.

Due to the generally strong demand for Apple products, investors usually respond positively as sales figures become clearer.

The broader market also influences the stock's performance. For instance, the declines in 2018 and 2022 occurred during interest rate hike cycles when the market also experienced a tumble.

From a financial perspective, Apple remains strong. In the most recent quarter, the company's revenue grew by 4.9% year-over-year to $85.78 billion, exceeding the market expectation of $84.5 billion. Earnings per share were $1.40, up 11% year-over-year, beating the market expectation of $1.35. This marks the sixth consecutive quarter with both revenue and earnings beating expectations.

Technical analysis and potential strategies

Apple's stock price oscillated within a horizontal channel for over a year. During WWDC in June, the stock price surged past the $200 mark on high volume, breaking out of the channel and advancing further.

Even during the market turmoil in early August, it closed above $200 and is currently about 4% away from its all-time high. Investors could see if Apple's stock would replicate its June performance following the new product launch.

Volatility analysis tools show that as of the close of August 30, Apple's implied volatility is in a moderate state.

Implied volatility values, IV Rankings, and IV Percentiles are theoretical estimates, and the actual market conditions may not always align with the theoretical information shown. Investors should exercise caution and use multiple sources of information when making investment decisions.No guarantee or assurance using any tools or data provided on the moomoo app will result in investment success or reduce investment risk.

Generally, implied volatility rises during earnings releases or major product launches. All else being equal, this could cause the option's price to rise.

If you believe the company's volatility will increase but are uncertain about future price direction, you can consider strategies like Long Straddle. If you think volatility will return to normal after a major event, you could opt for Short Straddle to profit from declining volatility.

It is important to note that options carry higher risks than stocks and are more volatile. Interested investors might systematically learn about options before trying them.

Related risks

• Market competition: $Alphabet-C (GOOG.US)$ and Samsung recently announced that their new Pixel and Galaxy smartphones will feature AI capabilities. Other competitors are also expected to embrace the AI wave.

• Regulatory risks: Devices with built-in AI features may face stricter regulations. The market expects more stringent compliance requirements in segmented markets like the EU and China.

• High valuation: Zacks Investment notes that Apple's current price-to-earnings ratio is higher than the industry average and its median, indicating a relatively high valuation level.

• New products failing expectations: The market is currently optimistic about the company's product releases, and this might be priced in. If the products fall short of expectations, it could trigger a pullback.

Additional Disclosures: This content is also not a research report and is not intended to serve as the basis for any investment decision. The information contained in this article does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Furthermore, there is no guarantee that any statements, opinions or forecasts provided herein will prove to be correct.

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