Headlines you might have missed (Week 12)
Here are some of the corporate headlines you might have missed from week 12, including news one Apple, Broadcom, Boeing, Airbus, FedEx, and Unilever.
Apple to license Alphabet’s Gemini AI
It has been clear for a while now that Apple has fallen behind its big tech peers in AI innovation. This is one of the leading reasons Apple shares have underperformed significantly so far this year and over the last 12 months.
However, I was still somewhat optimistic about the company’s prospects when Tim Cook commented earlier that we should expect some AI-related announcements from the company later this year, hinting at some product or feature releases. Apple has shown in the past that it has no trouble catching up with technology trends and bringing better products to market than its competitors.
Then, at the start of last week, rumors emerged that Apple is considering licensing Google’s Gemini AI, a competitor to ChatGPT, which I thought was quite a disappointment.
Apple is said to be in talks with Google to license its Gemini AI program for future iPhones. This means Gemini is aimed to power certain new features coming to iPhones as early as later this year.
While this is great on the one hand, as it confirms more advanced AI features are coming to the iPhone, potentially driving a new innovation cycle, I can’t help but be disappointed Apple has not been able to develop anything similar to Gemini in the last few years. The company has been leveraging AI technologies for years in programs like Siri and its overall features. Yet, apparently, it has been unable to develop generative AI programs with capabilities similar to those of Gemini.
As a result, Apple, which has tried to create and build everything in-house for years, is now forced to rely on Google for its advanced AI features. This will probably cost billions in licensing fees annually and limit its customizability.
Furthermore, the company is also said to have discussed a similar licensing agreement with OpenAI before but failed to come to terms. For reference, OpenAI’s ChatGPT is generally perceived as having the upper hand in generative AI innovation.
Of course, it could be that Apple plans to simply use Gemini until its own advanced AI programs reach a more satisfactory level, but I doubt the deal will be shorter than at least a few years. All in all, while the deal could be a positive for the company’s iPhone innovation, financially and technologically, I am not a fan.
For now, Apple has not commented on the matter so we are talking about rumors and no more than that. However, the news was originally reported by Bloomberg, which generally tends to be quite reliable and well-informed.
FedEx could return as an Amazon partner
In our in-depth analysis of FedEx, which we posted in early January, we mentioned that the company lost its partnership with Amazon in 2019, which has since been quite a headwind for its last-mile delivery segment, with Amazon being the fastest-growing and most important e-commerce platform in the U.S.
By the way, FedEx shares are up over 14% since we rated these a strong buy. Make sure to check out our coverage of the company!
Anyway, last week, positive news emerged that both companies are in talks to revitalize this partnership, according to the Wall Street Journal. According to the report, Amazon would consider having its return packages accepted at FedEx retail locations to improve convenience for its customers. For FedEx, this could be quite a lucrative deal, growing its parcel volumes and, therefore, the revenues of its ground segment, adding to our bull case.
FedEx already reported excellent earnings last week, significantly beating on the bottom line. Shares advanced over 7% in the following trading session. We aim to provide more in-depth coverage as soon as possible!
Unilever restructures
Unilever announced last week that it is planning to spin off its ice cream business into a standalone company. This will be part of a new cost-saving program that includes cutting 7,500 jobs.
The separation is expected to be completed by the end of 2025. It will result in the ice cream business, including famous brands such as Wall’s, Magnum, and Ben & Jerry’s, operating as a standalone operation, generating a turnover of over $8 billion.
Management expects the restructuring to result in $800 million of cost savings over the next three years. After the separation, management aims for mid-single-digit underlying sales growth and modest margin improvement.
Shares gained 3% last week on the news as it was well received by investors and analysts alike. According to RBC Capital Markets, the separation makes sense due to the segment’s slower growth profile and lack of cost synergies. Analysts also agreed that the segment has very different characteristics compared to the rest of the business, allowing Unilever to focus on its core operations better. However, investors might have to wait for the real benefits from this restructuring until after 2026.
Broadcom and AI
Last week, Wall Street analysts gave Broadcom multiple buy ratings. Through its networking semiconductors, the company is seen as one of the largest beneficiaries of the AI revolution. Simply put, the company’s networking semiconductors are a crucial aspect of AI/data center infrastructure, enabling the fast and efficient communication necessary for processing large amounts of data quickly and accurately.
The company has been playing into the AI hype by releasing several AI-specific networking semiconductors specifically designed to connect AI clusters and improve networking speeds. For reference, the company’s Jericho3-AI chip is capable of bringing together 32,000 GPUs while reducing the completion time frame by 10%. This practically means its chips allow AI accelerators to run 10% more efficiently, which is more than meaningful.
Considering this, it is easy to see why Broadcom is a massive beneficiary of the AI revolution.
Barclays reaffirmed its buy rating on Broadcom for these exact reasons, upping its price target to $1405.
Oppenheimer also reconfirmed its buy rating on the shares due to a bullish view on the company’s ethernet products related to datacenter expansion.
TD Cowen upgraded its rating on Broadcom to buy, mentioning upside potential stemming from its custom silicon and back-end AI networking. The firm set a price target of $1500.
Airbus wins orders from Boeing customers
Last week, we already discussed Boeing’s reliability issues and the fact that customers are starting to look elsewhere. This week, news emerged that Airbus had received orders for 65 jets from two key Boeing customers in Asia.
The risk of delays in certification and delivery was mentioned once more as reasons to look elsewhere by both of these airlines, giving Boeing another blow. Boeing is facing significant reputational and operational risks, which is why Bank of America analysts have also lowered their rating on Boeing shares.
These issues are expected to have long-term consequences for the company, even as long-term demand remains solid and the company is “too big to fail.” BofA cut its price target to $210 from $225, lowering its rating to neutral.
Apple faces a DoJ lawsuit
Bad news for Apple keeps mounting as the Department of Justice sued Apple last week, saying “its iPhone ecosystem is a monopoly that drove its “astronomical valuation” at the expense of consumers, developers, and rival phone makers.”
The DoJ has not ruled out the possibility of breaking up Apple. As reported by CNBC, “the DoJ claims the company’s anti-competitive practices extend beyond the iPhone and Apple Watch businesses, citing Apple’s advertising, browser, FaceTime, and news offerings.”
Apple shares fell by 4% on the news, and for good reasons. This lawsuit has the potential to drag on for years, costing the company many hundreds of millions and potentially preventing it from introducing new products or services. Besides this, the DoJ has worked on this lawsuit for multiple years and seems to have quite a strong case.
Ultimately, the lawsuit could have significant consequences for Apple, forcing it to change some of its most valuable businesses and tearing down its walled gardens.
While it is definitely too early to jump to conclusions today, this lawsuit is of a significant magnitude and should not be underestimated. Lawsuits like this are definitely reasons for us to stay away from the shares until more details become clear. Especially with shares still trading at 26x this year’s earnings, there are most definitely better opportunities available out there.
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Apple seems to really have bullseye on it right now. Not a great combo with iPhone weakness