The article was written by Motek Moyen Research Seeking Alpha’s #1 Writer on Long Ideas and #2 in Technology – Senior Analyst at I Know First.

AAPL Stock Value

Summary:

Tim Cook confirmed that Apple is indeed working on an Artificial Intelligence-enhanced software platform for self-driving cars.

However, we all know that Apple has always been a hardware company. It makes most of its money from selling pricey hardware products.

My fearless forecast is that Apple is just biding its time before it confirms that it is also developing its own self-driving luxury car.

Apple has more than $250 billion in cash. Apple can easily afford to buy electric car maker Nissan or BMW.

I Know First has a positive one-year algorithmic forecast for AAPL. The stock might dip near-term but it will most likely go higher than $146 again after a one year period.

I think Tim Cook was being coy when he admitted that Apple is now only working on the software side of self-driving cars. He said that Apple has abandoned its plans to make its own self-driving car. Apple is allegedly only focused on creating the Artificial Intelligence software/platform for autonomous vehicles. I don’t believe it.

Tim Cook could have instead said Apple is only delaying its Project Titan self-driving car project and AAPL would have bounced back to the $155 level.

(Source: Google Finance)

Project Titan could also become as valuable as Alphabet’s (GOOG) Waymo self-driving car subsidiary. Some industry observers now value Waymo as a $70 billion asset of Alphabet. I also suspect that Tesla’s (TSLA) super high valuation is partly due to it being also a leader in self-driving car technology.

Apple is doing a disservice to its investors if it permanently cancels its Project Titan project.

Apple Is Always Focused On Pricey Hardware, Not Software

Apple’s core business principle has always been to make hardware profits from selling pricey products. From the Mac to the iPhone, Apple always prioritized the hardware design over software. Software is only an after-thought to help complete the closed-garden ecosystem of Apple products. My fearless forecast therefore is that Project Titan will come to fruition within the next five years.

Apple is simply working on the software side to see if it could come up with a solution that’s competitive with Google’s Waymo AI technology or Tesla’s Autopilot software. Apple has been using a pricey Lexus SUV to test its self-driving car software. Perhaps next year, it will be using its own designed electric car to test its Project Titan product.

If Apple can dare to sell $850 iPhones, it also should take the plunge to find ways on how it can sell $80,000 self-driving electric cars. The people who buy pricey iPhones are usually among the affluent citizens of the world. They are ideal future customers for a luxury car from Apple.

If It Can’t Build Cars, Apple Can Just Buy Another Company Who Does

Apple is not a product manufacturer. It outsources production of the Mac, iPad, and iPhone to Chinese or Taiwanese companies. However, it might not be ideal for Apple to also outsource production of its self-driving electric car. Entrusting a highly-valuable IP like a self-driving car to Chinese firms could provoke national security issues from the U.S. government.

The more likely scenario for Project Titan is for Apple to buy an existing car manufacturer that already has commercial regular/electric vehicles. Apple has $250 million in cash. It can easily buy Nissan (NSANY) or even BMW (BMWYY). Both of these car manufacturers are battle-tested rivals of Tesla. The Nissan Leaf is the second best-selling EV car last year. BMW’s i3 was no.6.

(Source: ev-volumes.com)

Nissan’s market cap is only $46.02 billion. BMW’s market cap is $56.38 billion. Apple can buy both of them at the same time if it wants to. Nissan is known for budget-friendly cars, BMW for luxury vehicles. My point is that Project Titan is only viable if Apple acquires a real car manufacturer,l which has existing factories and distribution channels.

Apple can work on the software side of its self-driving car. It should also use some of its cash hoard to get a real car maker so that it can start selling high-margin autonomous cars.

Final Thoughts

I am not happy with Tim Cook’s revelation that Apple is now only busy working on the software side of autonomous car technology. I am still endorsing AAPL as a buy. This bullish endorsement is largely because AAPL is relatively undervalued compared to its peers with similar business model.

Check out FundamentalSpeculation’s chart below, you will understand why AAPL’s fair value is worth more than $170. Cohort Value is the Fair Value based on the Valuation Ratios of the cluster formed by the cohort (group) of companies with similar fundamentals. FundamentalSpeculation’s machine learning algorithm says Apple’s Relative Fair Value is $174.28. The Relative Value Model is extracted with proprietary adjustments on the Cohort Fair Value based on the target company’s sector.

(Source: fundamentalspeculation.io)

Alpha Omega Mathematica also agrees that AAPL is currently undervalued when compared to its Consumer Goods sector peers. AAPL has lower P/E, Forward P/E, and PEG ratios compared to its sector peers.

(Source: Getaom.com)

The machine learning stock picker of I Know First also has a very bullish one-year forecast for AAPL. The 1-month and 3-months algorithmic forecasts for AAPL are not favorable. The stock may dip a little, but I Know First is confident that AAPL will produce positive return for investors who buy and hold the stock for more than 1 year.

I Know First Algorithm Heatmap Explanation

The sign of the signal tells in which direction the asset price is expected to go (positive = to go up = Long, negative = to drop = Short position), the signal strength is related to the magnitude of the expected return and is used for ranking purposes of the investment opportunities.

Predictability is the actual fitness function being optimized every day, and can be simplified explained as the correlation based quality measure of the signal. This is a unique indicator of the I Know First algorithm. This allows users to separate and focus on the most predictable assets according to the algorithm. Ranging between -1 and 1, one should focus on predictability levels significantly above 0 in order to fill confident about/trust the signal.

Past I Know First Success With AAPL

I Know First has been bullish on AAPL shares in past forecasts. On August 14, 2016, I know First Analyst wrote about AAPL. Since then, AAPL shares have gained 35.44%. See chart below.

(Source: Yahoo Finance)

This bullish forecast for TCTZF was sent to I Know First subscribers on August 14th, 2016. To subscribe today click here.