Head of Equity Strategy
Summary: The market is not as excited about Apple's new Vision Pro mixed-reality headset as product reviewers and people working in the augmented reality industry saying Apple has leapfrogged everyone in the industry including the market leader Meta. Tim Cook said last night that this is the beginning of a new era in computing, but the market is so far more muted sending Apple shares slightly down in pre-market trading.
Apple announced last night (see all WWDC23 highlights here) its first major new product since 2015, when the company introduced its Apple Watch, with the announcement of a mixed-reality headset called Vision Pro. The headset can easily be switched between fully-immersed virtual reality mode and augmented reality where the person will be able to see the surroundings. The headset comes with a hefty price tag of $3,499 and Disney as one of its first big partners on the content side with Disney+ being available in the headset.
As Apple has become a $385bn business the company is increasingly in a position where new product launches must have large revenue potential to move the needle on the valuation and be worthy of Apple’s attention. Apple Watch, which was launched in 2015, has grown to an estimated $14-18bn annual business, had high aspirations but while the category is a big success in its own right it surely not what Apple had hoped. Apple Watch is surely not what has catapulted the company to the crown of public equity markets since 2015 measured on market value but instead its powerful Services segment entailing Apple Cloud, Apple TV, Apple App Store, Apple Music, Apple Arcade, and Apple Fitness+.
Apple CEO Tim Cook said at the presentation that “Today marks the beginning of a new era for computing” and analysts were quick to float the Vision Pro revenue potential to around 10% of revenue over the next 5-10 years. This would constitute a $50bn business over time and around $15-20bn in cash flow from operations and thus a meaningful addition to Apple’s overall cash flow generation. The Vision Pro headset also comes with its own VisionOS operating system which is designed for spatial application including direct support for Unity’s game engine software.
It is clear from the market’s reaction that it has difficulties pricing this opportunity. The initial price reaction was positive but ended the session lower and is down another 0.5% in pre-market trading today. Disney’s share price is up 0.3% in pre-market after being up 1.5% yesterday after the announcement. The biggest gainer is Unity up 17% yesterday and another 5% in pre-market as the Vision Pro might potentially create an entire new business line for Unity. Overall, the conclusion seems to be from the market that it is in a wait-and-see mode, at least for Apple shares.
If we move along from the market’s reaction to that of product reviewers and industry people then the picture sounds a bit more upbeat. The general viewpoint is that Apple has leapfrogged all other AR/VR headsets including the market leader headsets from Meta in terms of the product quality. It feels like putting on an Apple Watch experience on your head and many apps and features are seamlessly integrated into a fully pleasant experience. Some have complained about dizziness after 20 minutes of use and that it slips down and irritates the nose, but Apple has already communicated that these things will be improved before the official launch. But the overall conclusion is that it is a much more pleasant headset to wear than Meta’s Quest Pro and Quest 2. The price point has also allowed Apple to improve the display which features two micro-OLED displays with a resolution of more than 4K per eye translating into around 23mn pixels or 3.3 times more than Quest 2 from Meta.
People in the industry are generally blown away by the product and Rony Abovitz, the former co-founder and chief of Magic Leap, says that “all other VR companies are in deep trouble because Apple has raised the threshold”. While Meta wants to create a Metaverse it seems Apple is taking a different path with its mixed-reality headset placing it more with the current reality than building a new reality.
While Apple’s Vision Pro is definitely a technological feat highlighting the maximum capabilities of our current technology it is still difficult to imagine that this is a must have for consumers, but of course we could be terribly wrong. The big question, a likely the one asked today by the equity market, is whether the price point is simply too high to kickstart the “new era of computing”?
AI: The good, the bad, and the bubble
While a deep recession may not be iminent thanks to central bank policy, interest rates will have to stay high for longer, and this will be accompanied by volatility risk from the unwinding of bubbles, especially within AI.
Steen Jakobsen,
Chief Investment Officer
The emergence of advanced AI systems is by far the most surprising event this year, turning everything upside down, while risks and benefits are debated. AI will also become an arms race between the US and China.
Peter Garnry,
Head of Equity Strategy
As China navigates global fragmentation, its cycle of technology application, productivity enhancement, and growth is threatened by US breakthroughs in generative AI, limited computing power, and geopolitical tensions.
Redmond Wong,
Market Strategist
Japan’s expertise in semiconductors and robotic integration could be the foundation of AI dominance. Combining two of this year's themes, Japanese equities and artificial intelligence, brings a wave of opportunities.
Charu Chanana,
Market Strategist
The AI fever has turned the technology into a darling, pushing crypto further into no-man’s-land. There are striking similarities between AI and crypto, and if these are to come full circle, AI won't be spared for bubbles.
Mads Eberhardt,
Cryptocurrency Analyst
Stocks related to artificial intelligence (AI) have appeared on investors' radars. Expectations are high, but it may be necessary to consider how to get exposure to AI in a diversified way.
Hans Oudshoorn,
Trainer Academy
The USD is on its back foot as markets celebrate an eventual Fed rate peak and steady long US yields. The stakes are even higher for the Japanese yen if longer major sovereign yield curves have to price in economic acceleration.
John J. Hardy,
Head of FX Strategy
While commodities, broadly speaking, have faced some tough months, a partial reversal during June could signal that the asset class is getting back on its feet with energy holding up and precious metals with upside potential.
Ole S. Hansen,
Head of Commodity Strategy
As inflation remains high central banks face hard decisions about whether they should keep hiking interest rates or stop. Meanwhile, the rise of AI creates bubble-like conditions that only make the decision harder.
Althea Spinozzi,
Senior Fixed Income Strategist
