Apple’s Capex-Light Business Model, Apple’s Excess Cash Position, Apple Buyback vs. Apple Dividends
Hello everyone.
The initial plan was to begin going over Big Tech CY3Q24 earnings. There are a few new ideas worth trying out to get caught up quickly and efficiently. While we will still do that, a few incoming questions from members late yesterday led me to change the schedule around.
For the past two weeks, we have gone deep into Apple’s latest financial results. Yesterday, we went over everything share buyback. A somewhat simple question was raised. Is Apple doing the right thing?
The company is generating $100B+ of free cash flow per year and pouring it all into share buyback (and dividends). Is that the right strategy given where we are in the current generative AI / spatial computing environment?
It’s a worthy discussion to have in today’s update.
There are two topics in particular worth addressing:
Is Apple investing enough in its business?
Is Apple making the prudent decision with what is deemed excess cash?
Apple’s Capex-Light Business Model
Over the past year, one of the defining Big Tech debates on Wall Street has involved capex (capital expenditures). Generative AI mania put a spotlight on the amount of cash companies were spending on data centers, cloud infrastructure, and related assets.
Even before AI mania, capex was a hot button issue in Big Tech. Business models dependent on data-collection services were requiring increasing investment at unprecedented rates. Success for such business models was based on achieving scale in order to grab as much data as possible. Considering how several Big Tech business models were already capex-heavy in the sense of maintaining these data-collection services, the need for even more capex for AI came across as unnerving to some on Wall Street.
As 2024 progressed, there was evidence that Wall Street was warming to the capex situation. As discussed in the Inside Orchard essay "Big Tech Should Be Spending Big on AI," Wall Street began to agree with the philosophy that it is better for companies to invest now in capex because being late to the game would lead to more serious consequences.
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