Warren Buffett started buying Apple in 2016, and Dolphin Research began in-depth coverage of Apple around 2018. At that time, Apple was shrouded in ghost stories—declining phone sales (peak penetration rate, Huawei's rise), no next new hardware, and its valuation fell to around 10 times PE. Yet, the old man Buffett continued to buy against the trend.

Later, the story unfolded as follows: a) While Huawei was being squeezed, b) under the integration of hardware and software (universal chips, universal systems), Apple's sales rebounded. c) Apple's privacy policy adjustments in software also made the market recognize the power of Apple's services and software business again. d) Apple began to deliver annual returns to shareholders.

Under the double boost of performance and valuation, Apple's stock has increased almost tenfold in recent years, and its PE has expanded from 10 times to over 30 times. Buffett's gains on Apple are almost 800%-900%.

A good investment is a combination of "good industry, good company, good management, and good price." From these perspectives, the good price is no longer an advantage, especially when the company's performance is weak while its valuation is rising. This high valuation is different from the 2021 wave, which was driven by pandemic-induced peak performance.

At the current expensive price, Apple is more like a company on the eve of a new technological wave that requires increased investment (mainly in R&D), with free cash flow and buyback capabilities likely to weaken gradually. Another issue is the possibility of significantly higher tax rates on investment returns given the large U.S. fiscal deficit.

The problems Apple currently faces: a) The price is too high; b) Free cash flow capability (buybacks) may weaken before the new technological wave; c) Higher tax rates on investment returns.

It can be said that apart from Google and Meta, the two advertising stocks, almost all other downstream AI companies are overvalued, with increased investment, weakening cash flow, and potentially facing higher taxes in the future.

Two to three weeks before the earnings season of U.S. tech giants, Dolphin Research had already significantly reduced its virtual positions in U.S. soft tech stocks. Now, as the earnings season progresses, it has largely confirmed Dolphin Research's judgment: valuations are too high, and the expectation of rate cuts has already been fully priced in. Further pricing in rate cuts would turn into a recession trade, and without further earnings surprises, the only outcome is profit-taking and a pullback.

$Apple(AAPL.US)