It's not surprising that billionaire Ken Griffin's Citadel Advisors hedge fund owns shares of Apple (AAPL 1.45%). After all, Apple is the world's biggest company based on market cap. And Citadel's portfolio includes so many stocks I lost count skimming through its latest 13-F regulatory filing.
However, what might be less expected is how bullish Griffin is about Apple these days. Warren Buffett recently sold a big chunk of Berkshire Hathaway's position in Apple. On the other hand, Griffin nearly doubled his stake in Apple in Q2. Here's why his move could pay off big time.
NASDAQ: AAPL
Key Data Points
Griffin's big bite of Apple
Griffin has a long history with Apple. He first initiated a new position in the iPhone maker in the second quarter of 2013. This was nearly five years before Buffett first bought Apple, by the way.
Although the hedge fund manager has sold some shares of Apple in the past, he appears to be quite bullish about the stock now. In Q2, Griffin bought 2.64 million additional Apple shares, increasing Citadel's stake in the company by 93.3%. Apple ranks as Citadel's fourth-largest holding and its second-largest individual stock holding after Amazon.
Griffin's newfound bullishness about Apple didn't materialize out of the blue in Q2. He increased Citadel's stake in the company by 35.9% in Q1.
Indirectly, the billionaire's position in Apple grew even more than meets the eye. Griffin boosted Citadel's stake in its two largest holdings, the SPDR S&P 500 ETF Trust and the Invesco QQQ ETF, by 56.7% and 584.8%, respectively. Apple is the largest position for both funds, comprising 6.9% of the SPDR ETF and over 9% of the Invesco ETF.
Why the investment could pay off big time
We can sum up the main reason why Griffin's investment in Apple could pay off big time in two words: artificial intelligence (AI). To be sure, AI isn't a new arena for Apple. It has used AI for years, including in its Siri virtual assistant. However, the company is about to shift into a different gear.
Apple plans to launch the first version of its generative AI functionality branded as Apple Intelligence within the next few months (probably in October). Initial features reportedly will include a new Siri interface, the ability to summarize emails, rewrite content in different tones, create transcriptions of phone calls, and more. Other capabilities will come later, including integration with OpenAI's ChatGPT.
Why could Apple Intelligence be such a big deal? The new generative AI functionality will only work on iPhone 15 Pro, iPhone 15 Pro Max, and forthcoming iPhone models (as well as iPads and Macs with M1 and later chips). Some Wall Street analysts predict a new iPhone upgrade supercycle as users trade in their old iPhones so they can use Apple Intelligence.
In Apple's fiscal 2024 Q3, iPhone sales accounted for nearly 46% of the company's total net sales. An upgrade supercycle would boost Apple's revenue and profits. It would also almost certainly increase the company's services revenue, which comprised 28% of total net sales in the latest quarter.
What could go wrong
There's no guarantee that Griffin's big investment in Apple will deliver tremendous returns, though. I can think of three things, in particular, that could go wrong.
First, early users might not be overly impressed with the first version of Apple Intelligence. Negative word of mouth could stop a potential upgrade supercycle in its tracks.
Second, Apple Intelligence could spur higher iPhone sales but not enough to please investors. Apple's shares trade at over 30 times forward earnings. The company needs significantly more growth to justify that premium valuation.
Third, the U.S. economy could enter a recession and drag other countries' economies down. A major economic downturn would hurt Apple as consumers tighten their purse strings.
Griffin is obviously betting that none of these things will happen. Based on his track record, I suspect he's making a smart bet.
