18-Oct: An Update on Two Core Tech Holdings, Apple (AAPL) and Advanced Micro Devices (AMD)

18 Oct 2021 _ 10:00 PM EDT

Shares of these two tech companies outperformed the market today, with Apple (AAPL) up 1.18% to end its special event day, and AMD up 3.84% following an upgrade note.

Apple

Apple hosted its “Unleashed” event on Monday, introducing a new subscription service and several incremental product updates.

On the services side, the main update was a budget $4.99 per month Apple Music plan called “Voice” that allows users the ability to full engage with the Apple Music service using only their voice. While the new plan lacks a few of the features available with the full featured individual ($9.99 per month) and family ($14.99 per month) plans, it does provide for a solid entry-level offering for new users to tryout.

Moving onto the product updates, the HomePod mini will soon be available in new colors and the next iteration (3rd generation) of AirPods will come with spatial audio, adaptive EQ, longer battery life, will be sweat/water resistant and come with a MagSafe charging case. Ultimately, the 3rd generation AirPods will help narrow the gap between the 2nd generation AirPods and AirPods Pro. A comparison of the various iterations can be viewed here.

Finally, the star of the show was certainly the MacBook Pro – with Apple showing off new 14” and 16” models. Appearance wise, new models have done away with the touch bar and will feature a thinner border around the screen, though will feature a small iPhone-like lip at the top of the screen to accommodate the front facing camera. Of course, it’s what’s on the inside that really counts and on this front Apple unveiled two new upgrades to the M1 chipset, the M1 Pro and M1 Max, making them faster, packed with more memory and able to handle more streams of higher resolution video.

Ultimately, this was more of an “evolutionary, not revolutionary” event. That said, we think the new AirPods are a solid improvement over the current generation and will be a hit this holiday season. Additionally, the updates on the processor front (the new M1 chips) were impressive and should prove great enough to prompt upgrades by users not currently using an M1-based MacBook, especially as the COVID pandemic has pushed us into a one PC per person world – versus the one  PC per household world we were in pre-pandemic. Lastly, the M1 updates further demonstrate Apple’s efforts to vertically integrate its product lineup – a factor that, in addition to allowing for fully optimized systems thanks to Apple now being in full control of the hardware silicon as well as the operating system software, should help with supply chain dynamics (something we can all appreciate now more than ever). Bottom line, we believe the updates were expected and as a result don’t do much to impact our view on the company in either direction.

AMD update:

In other news, analysts at Wedbush reiterated their outperform rating on shares of AMD, while raising their price target to $140 (from $110) commenting that recent industry updates, including IDC data showing Q3 PC shipments increased 4% in the third quarter, give them cause to believe that their Computer and Graphics segment assumptions may be “overly conservative”.

In addition to the resilient PC shipments, the analysts called out a shift in PC mix to “higher margin categories,” sustained demand in gaming, constrained GPU availability due to gaming demand and “renewed crypto mining demand” – a factor that helps to support pricing power – and “seemingly better availability of AMD desktop processors” which should help AMD gain market share as the analysts believe the industry’s supply crunch has been holding the company back from gaining as much market share as it could have been these past few quarters.

Lastly, the analysts also cited the recent Taiwan Semiconductor earnings release, commenting that “TSMC’s strong 7nm shipments (up over 20% Q/Q) support [their] outlook for continued outperformance at AMD.”

Bottom line, we already knew that AMD was firing on all cylinders. However, we were encouraged to hear about the positive industry-level and end market dynamics and agree that supply chain congestion is likely holding the company back from realizing its full sales power – especially on the semi-custom front as next-gen consoles powered by AMD graphics chips are still hard to come by as we approach the holiday season.