Friday, Feb 12th 2021

It doesn't matter until it does


This was a busy week in the world of futuristic Apple product leaks.  First, there was news that it was dramatically ramping up testing of self-driving vehicles.

Then, reports emerged that it was developing next-gen augmented reality displays that could potentially address a significant pain point in the current state of VR/AR. These developments followed a dramatic series of leaks regarding a potential partnership with Kia on a self-driving electric car.

Yet despite all of this new color, Apple's stock remained relatively unchanged, now down -2% vs. the prior week.  What gives?

We think it's an example of one of the greatest sources of market inefficiencies that long-term investors can capitalize on: underwriting long-term, product-led growth.

For example, on the day the iPhone was announced, Apple stock rose less than 1%.  On the day AirPods were unveiled (more than a decade later), Apple rose less than 1% yet again.  

But as we all know now, the iPhone today is a $130 billion revenue business while AirPods - a relative footnote by comparison - is (as a single product) generating more sales than roughly half of the companies in the S&P 500.

We understand that being able to appreciate the full potential of the iPhone from its initial launch is a bit of a tall order. But we view the market's "error of omission" as less justifiable for AirPods a decade of growth later, and even less so for obvious step function change-drivers like autonomous vehicles or augmented reality.

For most investors, they'll see news around long-dated projects like these and say it doesn't matter: it's nothing firm, it's too far out, it won't impact near-term earnings.  

For us, we say it doesn't matter until it does, and we don't intend on being investors who only underwrite attractively-priced growth when it's clear in hindsight.

Stepping back, this week's news was far from an official product launch. Any real developments on these projects - if they materialize at all - would still be very far out. But we believe these data points signal meaningful progress on two exciting growth verticals that enterprising long-term investors should view as materially positive for Apple, despite not mattering very much today.  

As we like to say, it doesn't matter until it does.

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