The ad begins with an eye-catching claim. What will be it be?
The message then follows a familiar “invest in the suppliers” logic, common to those who’ve invested in tech stocks over the past couple of decades:
Lango’s main prediction is that Apple’s enormous customer base and history of dominating new technologies — even when they aren’t first to market — could set them up to become a leader in AI. This transformation would be driven by “Apple Intelligence,” an assistant technology set to feature in the next generation of Apple products, beginning with the upcoming iPhone.
Although the “new iPhone announcement day” has always been a significant event for investors eager to discover each new “must-have” feature, iPhone innovation has slowed in recent years. Each new model offers only incremental improvements: the camera is better, the screen quality improves slightly, and maybe there’s a new color. This slower pace has led many to keep their old phones for four or five years instead of upgrading annually, as they did in earlier days.
Apple’s revenue surged during COVID-19 as people upgraded devices for remote work and learning, but its growth had already plateaued before COVID and has remained flat since early 2022. This is mainly because Apple’s revenue is heavily tied to iPhone sales, which have been affected by a slower upgrade cycle and market share losses in China to more affordable domestic brands. While Apple still has a strong position in the high-end segment and is seen as a luxury product in China, it has recently offered discounts to slow down market share loss. Recent reports indicate that Apple has fallen out of China’s top five smartphone producers in the past year after ranking third only 18 months ago.
Despite these challenges, Apple’s stock performance has been remarkable, yielding nearly 800% returns over the past decade, even though revenue has only doubled and net income has increased by roughly 150%. This growth is partly due to Apple’s use of excess cash to buy back shares, boosting earnings per share by about 300%. Apple’s stock valuation has expanded significantly, with its price-to-earnings ratio increasing from 15x in 2014 to about 34x in 2024.
Back to Lango’s core message:
This strategy — identifying and investing in companies involved with the next iPhone by supplying essential components or services — has been a popular approach for investors, especially over the last 15+ years of Apple’s iPhone dominance. The idea is to invest in Apple’s suppliers rather than Apple itself. While most of these supplier stocks have underperformed over time compared to Apple’s shares, there have been a few long-term success stories. Lango points out a few notable examples, such as Broadcom (providing various chips for the iPhone), Qualcomm (supplying modems, though Apple has long aimed to replace them with in-house designs), and Taiwan Semiconductor (manufacturing Apple’s custom-designed processors for iPhones and Mac computers). Taiwan Semiconductor has been Apple’s top customer for years, though NVIDIA’s growing GPU sales may soon surpass Apple’s volume.
To give some perspective, Apple shares have delivered a remarkable 4,370% total return since the iPhone’s 2007 launch. Over that same period, Qualcomm lagged significantly, while Taiwan Semiconductor outperformed the broader market, achieving about half the returns of Apple. Broadcom, benefiting from the recent surge in AI technology, has returned an incredible 13,000%, surpassing other stocks in this area. For comparison, Alphabet’s stock has delivered about 1,300% returns, and NVIDIA has soared by 35,000%.
There’s a long history of Apple suppliers who enjoyed brief periods of strong performance, such as Skyworks Solutions (SKYW), when Apple initially adopted their amplifiers. This pattern even dates back to the iPod era, with various screen and tech suppliers powering that iconic music device. Many investors keep an eye out for the “next big supplier” that could take off from an Apple order. However, while Apple partnerships can boost smaller companies’ revenues, they often face challenges in sustaining growth due to Apple’s rigorous cost control and negotiation tactics, which allow Apple to retain most of the profit margin.
Landing a component or chip orders for the iPhone is a significant win for a smaller tech company, but it’s a mixed bag — similar to a consumer brand securing shelf space at Walmart. Such a deal offers significant revenue and an “endorsement” effect but doesn’t necessarily translate into high profitability.
Still, the excitement of a small company stepping into the spotlight is hard to ignore. The pitch, predictably, leans on some “FOMO” to urge investors to act quickly:
Apple introduced the concept of Apple Intelligence during its Worldwide Developers Conference (WWDC) in June, though some found the reveal a bit subdued, particularly regarding new product expectations for the year. While the next iPhone may be less AI-focused at its launch than some anticipated, AI remains largely software-driven, so upgrades could come relatively quickly with the suitable processor.
Incidentally, Apple has set the date for its following iPhone announcement.
So, who are these mysterious “silent suppliers”? Here’s a closer look at the pitch:
Here’s some insight into the first company:
Apple is known for its secrecy regarding suppliers and can be selective with new partners. Often, they’ll enter early development partnerships to help boost a supplier’s technology, but they might later decide it’s not yet suitable for mass production in products like the iPhone. Apple prohibits its partners from confirming them as clients, so the public often only learns of suppliers when specialists take apart the latest iPhone to analyze the internal components.
This first company receives the most attention in this pitch. Here’s additional information:
Lango believes those two press releases might indicate the same company, though the connection is still being determined. He explains:
Who might this “silent supplier” be? Enovix (ENVX), which some speculate could provide next-generation batteries to Apple, especially given that AI-powered processors will require more energy, thus driving the need for battery innovation.
While this is plausible, Enovix is unlikely to supply batteries; those phones’ designs were finalized months ago, with planned production levels in the millions per week. Enovix still needs to prepare for large-scale orders. Here’s my summary when Adam O’Dell was making a similar pitch to promote his Green Zone Fortunes service:
There has yet to be significant new information from Enovix recently. The stock has fluctuated from $15 back in July, dropping to $11 post-earnings in early August, down to $10 when I analyzed O’Dell’s pitch, and is now around $8.50.
Who are the other potential “winners”?
This company is Opera (OPRA), whose browser rivals Apple’s Safari and Google’s Chrome. Lango mentioned Opera in promotions for his Early Stage Investor newsletter, proposing that Tim Cook might mention it at WWDC in June, potentially boosting its stock price. However, that did not materialize, and there has yet to be significant buzz from other analysts about Apple potentially partnering with Opera or using Opera’s AI-enabled browser as a replacement for Safari. After a recent earnings report, Opera’s stock saw a slight increase, but it had since returned to levels close to when Lango first highlighted it as a potential asset for the “iPhone.”
Since Opera was not featured in WWDC, which presented Apple’s initial AI vision, it would be surprising if the upcoming iPhone launch included Opera. However, Opera remains an inexpensive tech stock with a niche role in the highly competitive browser market. The company has carved out a unique space by embracing AI, crypto, and gaming integrations while prioritizing user privacy.
Opera’s financials have generally been improving, with a notable 25% increase in average revenue per user (ARPU) over the last year, thanks mainly to more vital advertising revenue. Although Opera serves a global niche, with about 298 million monthly users, its ARPU currently averages just $1.46 annually. Approximately 7% of the global online population interacts with Opera, but many of these users access Opera through low-cost smartphones in emerging markets. Around 50 million of its users are in the more profitable U.S. and Western European markets.
Opera’s appeal lies in its cost-effective growth prospects. Revenue and earnings are projected to increase by around 15-20% annually, and its stock, priced near $14, trades at roughly 15 times 2024 expected earnings ($0.94) and 12 times 2025 earnings ($1.17). This presents a relatively low valuation for a tech company with consistent growth, even if its current growth rate is slower than in past years.
Looking ahead, Apple’s AI developments may create competitive pressure for Opera, as large tech companies like Google and Apple often incorporate Opera’s innovations into their own browsers. Opera’s reliance on partnerships with large advertisers and on Google for search and ad revenue sharing also creates exposure to any shifts in these agreements, which could significantly impact its revenue.
Despite these challenges, Opera’s push into AI and privacy-focused features, including its Aria AI Browser, could help it maintain and grow its high-value user base. However, it is still heavily dependent on a few critical partnerships, which makes it vulnerable to changes in the strategic direction of those partners. While Opera offers a unique take on AI and crypto integration, its small size and reliance on partnerships mean its growth potential comes with certain risks.
The company’s attractive valuation could mitigate some of the risk involved. They don’t necessarily need to announce a new partnership to see a potential 20-30% stock increase over the coming year. Simply gaining more investor trust and aligning closer to the market’s average valuation multiple could lead to such growth. Opera is still a tiny player compared to other global internet browsers, but it stands out as a resilient contender. It also operates efficiently, relying on more significant partners and keeping costs down without the burden of extensive R&D expenses or operating its own data centers. Thanks to this model, Opera can afford to pay a substantial dividend (currently 41 cents, issued twice yearly, translating to a yield of over 5%).
If investors were to rally behind Opera and it reached the S&P 500’s average price-to-earnings (PE) ratio of 22x forward earnings, Opera’s share price could rise to around $23. However, Opera is only covered by a small handful of analysts, which increases the chance of estimate discrepancies.
While all of this is promising, it’s hard to pinpoint when the market might give Opera the credit it needs, so patience is likely required. It’s unlikely that Opera will feature prominently. While Apple occasionally highlights popular apps during product announcements, they rarely spotlight rival browsers over their Safari. If Apple were to partner with Opera and integrate its AI (likely supported by Google’s Gemini AI) into its ecosystem, it would more logically have been announced at the developer’s conference, not at the iPhone release event.
On to the next:
This refers to Apple’s widely reported discussions with major AI companies about potentially integrating their technologies into Apple’s ecosystem or Apple Intelligence. Apple may be working on a concept similar to an “AI app store,” where iPhone users could access various AI models tailored to specific projects or tasks. However, these talks are still likely in the early stages, having surfaced only recently as initial negotiations.
Besides Alphabet, the other public company Apple is reportedly negotiating with is Meta (META). Meta stands out due to its unique ability to personalize based on individual user activity, leveraging data from its platforms like Facebook and Instagram. This user-specific focus aligns with the kind of customization Apple might seek for its AI products, making it likely that Lango is hinting at Meta in this context. While not a small or obscure company, Meta could still see benefits from Apple’s vast user base, which spans two billion devices, providing substantial distribution reach for any AI-related integration.
The Wall Street Journal recently discussed the rumored negotiations between Apple and Meta about possibly integrating Meta’s generative AI model into Apple Intelligence. Here’s a brief excerpt from their coverage:
We find ourselves in a “land grab” phase of the AI enthusiasm cycle, where major corporations are eager to secure their place in this emerging market while establishing robust distribution networks to fend off competitors. The staggering costs associated with training and running AI—such as purchasing millions of NVIDIA chips and managing high electricity consumption—are daunting. Leading tech companies primarily focus on investing adequately in AI rather than fearing over-expenditure. Meanwhile, apart from NVIDIA and a select few hardware companies benefiting from the surge in data center investment, no one appears close to finding a viable path to profitability in the AI space at this early stage.
The implication is that companies like Alphabet, Microsoft, Amazon, and Meta have a strategic advantage in this cycle—they’re not at risk of going under if consumer AI products don’t bring in the profits as expected after a few years. On the other hand, startups such as OpenAI, Perplexity, and Anthropic are currently well-funded but face different risks.
As for Apple, it doesn’t place all its bets on one specific winner. Instead, it aims to ensure that successful AI technology can be integrated seamlessly into its renowned hardware. This strategy keeps Apple from missing out on the gains that new AI-driven products or business models could bring, allowing it to continue profiting if and when the opportunity arises.
Lango offers a compelling summary of where he thinks this trend will take Apple:
If that prediction holds, some analysts believe an AI-feature-rich iPhone could accelerate the replacement cycle, encouraging more users to upgrade. This news could have an outsized impact on Apple compared to its partners or suppliers. However, Apple’s high stock valuation as a slow-growth company might mean investors are already pricing in expectations for this cycle.
Lango also highlights Apple’s “silent partners” on the hardware side, longtime suppliers that could benefit significantly if iPhone sales double in coming years. Taiwan Semiconductor Manufacturing Company (TSMC) is one such example. Here’s Lango’s take:
TSMC will likely continue expanding alongside the broader demand for chips, especially high-end ones, partly because competitors like Intel and Samsung struggle to match TSMC’s technological edge. However, the stock may be less appealing at its current valuation, as it’s far better known and much more highly valued than it was a couple of years back. Semiconductor stocks are reaching historically high valuations. While the industry’s cyclical nature (with big boom and bust periods) has often caught investors by surprise, it’s uncertain if a “bust” is on the horizon anytime soon.
One factor that has kept investors cautious about Taiwan Semiconductor, Taiwan’s largest company, is the political risk stemming from China’s territorial claims over Taiwan. With frequent tensions between the US, Taiwanese, and Chinese forces in the Taiwan Strait, there’s always some level of risk that geopolitical instability could impact the stock, whether through sanctions, blockades, or other disruptive actions. Without this risk, it would be easy to argue that TSMC, given its technological lead and strong demand for its products, could justify a 25x earnings valuation. However, considering that TSMC spent much of the past 20 years growing slower and was valued closer to 12x earnings, the stock remains a speculative bet, albeit one with significant potential.
With that, I’ll leave you to ponder what Tim Cook might announce on Monday and whether any excitement could trickle down to Apple’s partners. Do you have any thoughts on Opera, Enovix, Meta, or Taiwan Semiconductor? Drop a comment below if you’d like to share.
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