Apple is not a short candidate due to AI-driven Mac demand, but current valuation and memory supply constraints make it unattractive to buy at these levels.

It's not just an Apple story. It's the access to memory through or via Apple. That might be what this is.

Most of the advanced models of the Mac Minis and Mac Studios are appealing for developers have been out of stock for months. The memory shortages impacting Apple.

Apple has begun building its own servers using Mac chips. However, they're strictly for the internal private cloud. But Open AI going shopping from Apple. I mean, Apple is now basically now becoming this supply like Nvidia like supplier. I mean, that's pretty incredible.

these products are currently flying off the shelf. Turns out the machines are well suited for running agents AI software that handles multi-step functions from editing to task code to automating uh and summarizing stuff blah blah blah.

because if I go to Apple investor relations, let's pull up their latest report SEC filing 10. Oh, yeah. End of the month rebalancing. That's true, too. Okay. So, this is the last earnings report. Apple 10Q 831.

I just want to see the computers section. And then after we look at computers, we should also go look at apple.com for the Mac. Mac Studios available for pre-order. Oh, no. You can pre-order now.

Uh, can you ultra chip? Let's see here. I'm just doing around with these specs, too. Pick up December 1st. Oh my gosh, dude. Those already got kicked back a lot because I was just looking at this the other day.

Uh, let me look at the minis. Wow, that's all of October. All of November. you have to wait. Uh, and if I look over here, if I go with, let's say, uh, the M5 Pro chip, you know, pop open memory, whatever. That's too small. I'll just go over here.

See, this is a mini is available. It's It's the studio that's getting hit because the studio has the 256. If I go with the 96, it's also December one.

I bet you that's the story that's driving this right now. That's fascinating. Let's go to I want to go to segments. It's going to be under their personal compute segment of revenues. Here we go. Wearables Mac. It's under Mac.

You know, like that's a catalyst game changer. Honestly, if people like OpenAI starts buying these, dude, that's crazy cuz you've actually, look at this. You've actually already got more growth in Mac than you have for phone on a percentage basis.

On a dollar basis, it's not even close, right? On a dollar basis, you've got 10 bill versus two bill, but 29% versus 22. And so now, it's just a matter of how much allocation can Apple get to memory. That's interesting.

M5 Ultra. Let me take a look at these. That's this. Yeah, that's exactly what I was looking at here. M3 Ultra, the older one, still gets blown out of the water by the 5090s. Interesting.

Interesting. Okay. All right. So, yeah, there's there's an agentic AI play here. That is very very interesting. Okay. Uh yeah, we'll play evaluation on this as well.

Now, more interestingly, we got to talk about Apple. OpenI is reportedly buying Mac Studios, and this is freaking crazy news. So apparently the latest M5 Ultra chips are so freaking good at running localized AI agents that OpenAI is rushing to buy thousands of these.

Now this is really interesting because I've regularly talked about uh how you could run a lot of really good AI models on local chips. Like at Reinvest, we run a lot of really good AI models on 5090s and RTX 6000 Blackwell chips because we don't actually even need the full 96 GB of VRAM.

Some tasks you do and we have them. You don't even sometimes need the full 32 GB of VRAM that the 5090s have because you could do so much work as one chip handles one task and you kind of spread out the chips rather than trying to handle this gargantuan task.

But for agentic use, people are buying Mac Studios as a call option on what artificial intelligence uh chores, agentic chores might end up coming to an iPhone near you soon, which is kind of incredible.

So, what if that iPhone fold potentially gets announced with a new operating system and by October we're able to run localized Aentic AI on our phones. The thesis is maybe if you start building out server sets on Mac studios like OpenAI, you might be the go-to Mac infrastructure supporting Mac users or iOS users.

Now, a lot of that is speculation. Okay, we've heard Apple come out years ago and go, "AH, INTRODUCING AI and and they've done like nothing." Okay, maybe I shouldn't say they've done nothing.

Text message summaries are cool. Notification summaries are cool. This is like scratching the surface of AI, right? Email notifications are cool. Email search has gotten better.

Uh, you can now search your photos with text and which is also kind of creepy, but they basically like somehow uh categorize all your photos and then you search like burrito, all your photos of you with burritos come up and every time I do it, I just get me wearing a sombrero talking about Taco Tuesday and I'm like that's that's Taco Tuesday.

It's not burrito Tuesday, but I guess it's close enough. So like that's the kind of AI or like making little mmojis that Apple has been doing

and there's a bet now that Apple could actually get into agentic AI and that potentially is leading per the information via tech republic open AAI to purchase tens of thousands of Mac minis and Mac studios.

Now the Mac minis are still available right now. They're all pre-order uh as of uh now starting to be available uh September 22nd. And what I noticed is that the M5 Pro chip for the Mac Mini with 64 GB of memory is available on release day.

Uh and it looks like that's available for all variations of memory. If I go to the M6 chip, uh let's see what we have here. Here we go to the M6. We can only go up to 32 GB of RAM.

Oh, wait. No. Choose from more options. Okay. They've got a little bundle here. 64. Oh, no. I've got to update to something else. All right. Whatever. If I accept the change. Anyway, with the Mini, I could still get this device on the 22nd.

Oh, it it dumps me back down to the M5. So, you can't get the M6 with 64GB of RAM. That's what it's doing. So, those are available.

But look at the Mac Studio. This is the chip people are freaking out about, the M5 Ultra chip. A lot of devs are waiting for the future 512 option because you're going to be able to run really big models on this.

And this is where people are freaking out about the M5 Ultra. It's not the Pro like the Mini, although the article says that's being bought, too. these 512 gigabyte models really means you could run a model like a Kimmy K3 on a freaking Mac. Like that's impressive on a Mac Studio.

So when this story came out about 25 minutes before the market closed, Apple didn't move that much.

But until then, they are spending like drunk sailors to the point where Apple announces Max Studios and what happens? Oh yeah, you know, we're going to buy uh tens of thousands for AI agentic uh work.

Anyway, maybe they could just buy a Mac Mini and not have this problem. But looking at the rest of the article here, we could see the information has been talking about how Apple stumbled into AI hardware success with the Mac.

This is an older piece where they just talked about how the machines are well suited to running agents, AI software that handles multi-step tasks from editing and testing code to automating email box uh inbox organization or summarizing documents.

Basically, one step at a time tasks that you could really do with a machine uh like a smaller, more consumer-rade machine. But this wasn't really the piece that moved everything. it was this this piece about them buying tens of thousands of these is a gamecher and that's where we kind of have to look at how could this potentially affect Apple's you know revenue first

we already see their Mac sector growing percentage-wise faster than the iPhone grew revenues $10 billion but the Mac grew at 7 percentage points faster

the M5 Ultra is also Apple's first quad die architecture their most powerful chip And people cannot wait to get the uh uh 512 version. Right now you can only order up to the 256 version.

So uh this has been talked about before like even in the Apple's earning in the Apple earnings calls they've talked about how people are deploying clusters of these to run frontier class models locally.

Open AI blowing money on Apple was not priced into this stock in my opinion.

And so I think the memory stock or or the memory situation has become so ubiquitous that we could really see some actual growth to these MAC numbers.

The problem is we have real constraint issues. Growth rate estimates for MAC right now are only about 8%. So even if you I don't know in my opinion you go to 25% on Mac you're constrained by revenue and you're just not moving that bottom line that much because if I go 10.3 billion and I multiply that by the current estimate of 8% growth I get that's billion right I get uh $820 million if I go with my number of screw it let's go with 50%.

That's five billion. That's four more billion dollar. Okay. The bottom line in sales would be about 4% more sales. Call it, you know, $4 billion coming to the bottom line.

So, let's go to their income statement really quick. And let's see what we've got here. So, here we have, let's see here. These are the shares outstanding. That'll be useful in a moment.

If we look at their net margins, their net margins are 29.78 divided by 109. 29.78 divided by 109.4. I'm at about 27.2 comes net to the bottom line times $4 billion. That brings me down about a billion dollar to the bottom line essentially on net.

Okay. If I take another billion bucks, 1 divided by 30, I'm going to increase my net by about 3.3%. So, my earnings per quarter go up like 7 cents. You know, it's not that much.

If I multiply that by the year, I get to about 27 cents more of earnings.

Okay, 27 cents more in earnings. Uh, you know, what does that actually do for the stock? Not much because you're memory constrained. And that's probably why we saw those memory stocks move more than Apple because 27 cents on let's see what the current forecast is for Apple and the PEG ratio is already elevated for Apple. It's you know it's it's up there.

So if I pull Apple financials right now I'm going to go look at $8.85 27 into that increases their earnings. Yeah. 3% is all you're really increasing earnings per share.

I think what's more interesting is you could really escalate the potential growth rate for the company. See, the growth rate for the company is only estimated at 9% right now. So earnings would only grow by 9% per year.

That 9% per year works out to about 75 cents. So you're increasing that by a third.

Okay, let's get more aggressive. Let's assume memory supply really starts coming online in 27, 28, 29, and 30 and people actually pick up these Mac Studios. Pricing power stays high for Apple.

Pricing power stays high. Memory costs come down. Apple takes more margin. This is the play.

The play is if you believe that Apple can get to 20% EPS growth because all of a sudden their AI takes off, people are buying Mac Studios to run models locally. Screw Open AI. We'll compete them away with our own Chinese open weights, but we're going to run them on Mac minis and Mac Studios.

Then here's the play. 20% average expected growth. We take their current EPS and we multiply it by about a 24 peg. probably this could be a $425 stock. So that's potentially where you could see that upside compared to the 316 where we sit today. 316 divided by 425.

These boosted expectations uh could potentially lead the stock to run up about 35% just on expectations like that.

That would be my initial analysis. But it really requires the memory shortage like stopping being a memory shortage because otherwise Apple's going to be too constrained to see this happen.

And really what it means is OpenAI is going to get in line in front of you who sat around and waited a couple extra days to place your Mac Studio order. And now Sam Olman's getting them all. Damn it, Sam. He's back at it again.

But yeah, I mean this is happening at the same time that their new CEO is stepping in. So, a lot of people are like, "That's right. This is becoming a data center provider, baby.

Let's go, Apple." Uh, and so that's the big play here.

And yeah, that could actually meaningfully rerate the stock, especially if they could bring better AI to consumer grade hardware that we actually use as consumers. And they could start supplying the Frontier Labs because those people spend like drunk sellers. and anybody that is selling to those is just going to see their margin and their earnings per share go up way more than analyst expectations.

So, personally, I'm I can't be bearish Apple on this. Now, I don't really want to pay these levels for Apple and I think there are a lot of really juicy plays out there, so there's a limited amount of money to go around, but I certainly would not be short Apple on uh on these sort of sets of news coming through.