Apple has a cash problem

Phoning it in. Apple has a cash problem. Not that it is lacking: $2.8 trillion company produces over $100 billion of excess cash a year. But last week’s reveal that its top line shrank 4% last quarter - and an underwhelming event on Tuesday that launched upgred iPs and a new Apple Pencil - show company’s quandary. Tim Cook’s firm needs a better long-term growth plan. Investing in AI may be necessary, but it's also too risky to go full steam ahe.

Beefing up artificial intelligence capabilities seems like a natural way to launch into next dece. Apple has grown its services division, but it is still primarily a device company, as Tuesday's event showed. People want ggets that are more convenient and smarter, and y expect Apple to be a leer.

trouble is technology rivals like Microsoft and Alphabet have a clearer path to making AI initiatives lucrative. ir cloud computing platforms are used by firms like OpenAI to train and run services, making m backend engine of new tech. That is alrey churning out revenue. Conversely Apple, like Meta Platforms, doesn't know exactly what customers want. Apple could turn a heset from curiosity to must have. But timeline for delivering goods is unclear, and payoff uncertain.

Apple has been plowing more cash into products. Research and development spending as a percentage of sales has nearly tripled to 9% over past 10 years. Yet shareholders haven’t been rewarded. Share performance has lagged Microsoft.

So Apple for now is sticking to its comfort zone. It has sent almost $500 billion back to investors via dividends and buybacks over five years, over twice as much as $3.1 trillion Microsoft. Last week Apple said it would buy back anor $110 billion, sending shares up despite its mediocre performance. Still, stock’s price to estimated earnings over next 12 months is 26 times, according to LSEG, double a dece ago. Investors expect Cook's company to be more than a cash cow.