The Next NVDA Is AAPL

The New AI King Is… Apple?

Heh, and we thought yesterday would be the last time we’d have anything to say about Nvidia for a while.

But as it happens, NVDA was hit hard amid a broad stock-market sell-off yesterday (about which more in Bullet No. 2).

The share price tumbled 9.5% — which translates to a one-day shrinkage in NVDA’s market cap of $279 billion and a $10 billion hit to CEO Jensen Huang’s net worth.

And that was before Bloomberg reported that NVDA was served with a subpoena from the Justice Department: “Antitrust officials are concerned that Nvidia is making it harder to switch to other suppliers and penalizes buyers that don’t exclusively use its artificial intelligence chips.”

Checking our screens, NVDA is microscopically in the green today.

At least one group of Wall Street analysts sees Nvidia losing its crown as the leading AI stock next year. The new king is destined to be… Apple?

According to a research note from Citi, the development of AI is proceeding in three stages — chips and servers, followed by infrastructure and finally devices. (If you were with us yesterday, you’ll note the similarities to our own James Altucher’s “AI stack.”)

As Citi sees it, we’re transitioning into the third stage — where Apple is poised for dominance.

From a Business Insider summary: “While Nvidia has dominated much of the infrastructure stage, it appears to be prime time for AI technologies to transition to on-device capabilities that will lead to large-scale consumer and enterprise adoption…

“Apple is setting the stage for this transition with its upcoming release of ‘Apple Intelligence,’ which brings AI capabilities to the iPhone lineup.”

The company will roll out these AI capabilities during its annual dog-and-pony show set for next Monday.

And with that rollout, iPhone owners will finally have a reason to upgrade for the first time since they splurged on electronics for work-from-home in 2020.

Citi forecasts that AAPL will sell 85 million units of the new iPhone 16 in 2024… and 92 million units of the iPhone 17 in 2025.

"We view Apple as in the best position to make it possible given its leading position in the premium smartphone market and seamless integration of software and hardware," writes Citi’s Atif Malik.

And to think that not so long ago, Apple was seen as the also-ran in the AI sweepstakes.

We took note of the mainstream pile-on six months ago. Yahoo Finance: “You'd think the phrase ‘If you can't beat em, join em’ shouldn't apply to an enterprise packing hundreds of billions of dollars to throw at a problem.”

But as Paradigm’s AI authority James Altucher explained at the time, “Apple is taking a slower and more cautious approach to releasing customer-facing applications of AI.

“Apple has a history of waiting to optimize new technologies before releasing them to the market,” he reminded us. “Apple’s slow delivery in the AI space would suggest the company believes today’s AI technology does not meet its standards and that there's more innovation that can be squeezed out to produce the perfect product.”

This has long been the Apple way: Let Sony screw up a digital music player… while Apple quietly perfects the iPod. Let BlackBerry and Palm make the early mistakes on a smartphone… while Apple refines the iPhone so it’s a must-have item from Day 1.

And so it goes with AI: Let ChatGPT (and its sponsor Microsoft) take the heat when large language models make stuff up — oh, excuse me, “hallucinate.” Let Google take the flack for Gemini being so “woke” that it couldn’t or wouldn’t generate images of white faces.

Twenty-one months after ChatGPT propelled AI into mainstream awareness… Apple is poised to dominate AI starting Monday.

The Media Always Has Its “Reasons”

So, about that stock-market sell-off yesterday, the worst we’re told in — gee, nearly a month…

This is a classic instance of the media fishing for “explanations” behind every move in the markets.

We mentioned the “disappointing economic report” and “signs of weakness” in manufacturing yesterday: The ISM Manufacturing Index for August rang in at 47.2 — well below the 50 dividing line between a growing factory sector and a shrinking one.

But the number was only slightly worse than expected. And as we said yesterday, what else is new? The number has been mired below 50 almost nonstop since late 2022.

There could be any number of explanations behind yesterday’s sell-off. A high roller using too much leverage facing a margin call. Trouble in the banking system that’s not yet headline news. Maybe just a collective realization that the market is too richly priced by historical standards (at least until the zeitgeist shifts again in a day or two!)

But whatever the explanation is, it’s not an ISM number that surprised no one and reinforced a longstanding trend.

In any event, the selling is over for now. The major U.S. indexes are little changed from yesterday’s close. At 5,531 the S&P 500 is 2.4% off its record close in mid-July.

Gold is still stuck a little below $2,500 but silver has recovered the $28 level. Bitcoin can’t seem to crack through the $58,000 barrier.

After the release of the Energy Department’s weekly inventory numbers, crude has slipped under $70 for the first time since early January.

Canna-Business Is Not Booming

The time for cannabis investing has come… and gone. For now, anyway.

From The Associated Press: “A decision on whether to reclassify marijuana as a less dangerous drug in the U.S. won’t come until after the November presidential election — a timeline that raises the chances it could be a potent political issue in the closely contested race. The U.S. Drug Enforcement Administration last week set a hearing date to take comment on the proposed historic change in federal drug policy for Dec. 2.”

Not good for the legal-weed sector: “Cannabis names have languished for years at this point, plagued by oversupply, and frustrated over and over again by the failure of the federal government to move the ball on legalization,” says Paradigm’s Ray Blanco — who guided his readers to profits on several cannabis names starting in 2016.

“Things looked very promising under the Biden/Harris administration, but despite a favorable configuration in both Congress and the White House, nothing has happened.”

Nor, as you see, will anything happen until after Election Day. For now, “cannabis is still scheduled in the most restrictive category by the DEA,” says Ray — “alongside truly hard drugs with ‘high abuse potential and no medical use’.”

Maybe that would change under a new administration. Over the years, Kamala Harris has softened the hard-core prohibitionist stance she took as a prosecutor in California. And Donald Trump is hinting at support for a legalization referendum on the ballot this year in his state of residence, Florida.

But for now, “I don’t think we’ll see any positive legal moves for the industry anytime soon,” says Ray — “leaving it stuck with the disadvantages of operating in a restrictive financial environment and dealing with a punishing tax code that won’t let it take normal business credits and write-offs.”

Copper Thieves Operate in Broad Daylight

The national trend of copper theft has gotten so bad, you could lose your electricity as a result.

Police in Dallas, Fort Worth and other areas of north Texas say there’s been a flurry of such thefts recently. And as far as they can tell, it’s not the work of organized gangs — just common thieves eager for a buck.

From CBS’ Dallas outlet: “The thieves aren't opposed to climbing poles and using ladders, fences or even cars to carry out their efforts, according to Garland police, while the vehicles ‘they are using are regular and unmarked cars, trucks and vans’...

“Thieves seek the valuable metal by targeting utility poles, electrical substations and other infrastructure. Authorities say the stolen copper is sold to recyclers for high profits, causing significant disruptions and financial costs.”

Not official utility workers [Garland, Texas Police Department screengrabs]

Nor is Texas alone. Northern California has seen a similar spike this summer. "In the past year, we have had 220 reports of wire theft, which is 200 more than the previous year," says Bisa French, the fire chief in Richmond.

In one incident, the thief didn’t know what he was doing and was electrocuted inside a vault owned by PG&E, the electric utility.

Other incidents are targeting phone and internet lines. Two communities briefly lost 911 service in June.

AT&T is offering a $5,000 cash reward for tips that result in arrests. It’s also suing a recycling company in the Bay Area that it says was buying stolen copper.

Look for this trend to come to a neighborhood near you if the economy turns south later this year…

Mailbag: Predictions Are Hard

Today’s entry in the mailbag is a reminder of the wisdom attributed to Yogi Berra — predictions are hard, especially when they pertain to the future.

“I enjoy reading the missives from Paradigm and appreciate the fact you let your editors voice their opinions without needing to tow any company line. That said I was struck by the following from Sean Ring in yesterday’s edition:

“‘I just don’t know how anyone can want to get short right now,’ Sean writes in his Monthly Asset Class Report at the Rude Awakening.

“‘The problem with brilliant people is they see far into the future. Too far, by half. Sure, there will be a day to sell, but it’s not today, and I don’t think it’ll be anytime soon.’ Sean sees the S&P on its way to 6,000.

“I don't consider myself to be brilliant but I am a pragmatist and a student of history. As such it appears that the economy is in the early stages of a depression and that equities are historically overvalued. The parallels to 1929 are obvious to those that study history and as such I am predicting that equity markets will begin an unprecedented crash in the next six weeks (they peaked as of Aug. 30).

“My second prediction is that Sean will leave Paradigm in the next year, either of his own volition or through Paradigm's choosing. Not because I think Sean is incompetent or a bad egg but because ‘public sentiment’ will move against him. When the masses more irrationally or not all get caught up in their wake.

“Of course I'm human and could be horribly wrong. But I'm human so I'm also a little vain and therefore wanted to get my call out in the hope that you reach out to me when both of these come true.”

Dave responds: It comes back to John Maynard Keynes’ quip about how the market can stay irrational longer than you can remain solvent. (Keynes was a lousy economist, but a pretty good investor!)

Just guessing here — but you’ve already achieved financial independence?

If so, good on you. You have the luxury of declaring, “The stock market is wildly overvalued — I’m out.”

Most of our readers don’t have that luxury.

We could have made a very solid case that “stocks are overvalued, avoid them” almost any time in the last 10 years — and we would have done our readers a considerable disservice!

Even now, it might be a disservice. Look at the other major asset classes…

• Treasuries are rallying in the near term, but we’re in the early years of what’s probably a new 40-year cycle of falling prices/rising rates

• It’s only in the last few months that gold has broken out into an indisputable bull market

• And as we mentioned yesterday, hiding out in cash instruments yielding a guaranteed 5% will go bye-bye as the Federal Reserve starts cutting interest rates.

As for Sean, I expect he’ll stay in the fold for a good long while. He’s an eminently sensible fellow — strong opinions, loosely held.

Which comes back to another famous line attributed to Keynes: “When the facts change, I change my mind. What do you do, sir?”