Luke Lango is selling subscriptions to his entry-level Innovation Investor newsletter (currently $199/yr., 90-day refund period… was last pitched at $49 a couple months ago), and the bait he’s using to attract subscribers is a promise that he can identify three “silent AI suppliers” that will benefit from Apple’s move into Artificial Intelligence — and specifically from the launch of the next iPhone, which will be introduced next week.

Here’s how the ad begins:

“Apple Is Finally Set To Launch Its First Ever AI Device — And They Could Be Banking On Three Tiny Companies To Make It Happen”

And the basic “buy the suppliers” argument, which will be familiar to anyone who has invested in technology stocks over the past couple decades:

“I do think Apple is a great stock to buy. But the real opportunity here isn’t in buying Apple itself.

“Instead, the real opportunity is in the smaller companies that could help Apple bring this move to life…”

The big picture prediction from Lango is essentially that Apple’s huge customer base and history of dominating new technologies, even though they’re rarely “first” in new product categories, means that they’re likely to eventually become the AI leader… fueled by the “Apple Intelligence” assistant that will be built into the next generations of Apple products, beginning with this next iPhone.

“… after sitting on the sidelines for so long…

“Apple has finally made the decision to enter the AI race…

“And in typical Apple fashion, they’re doing it with a bang…

“So much so that CNBC is already calling Apple a ‘Dark Horse In The AI Race’….

“I think they have a shot at becoming THE global AI leader. The top AI company in the world.”

And although “new iPhone announcement day” has been a big deal for investors for years, as we wait to see what will make that new product a “must buy”… it’s also true that the iPhone has really stagnated over the past several years, with the improvement in each new model no longer really standing out dramatically. The camera gets a little better, the screen gets a little better, maybe there’s a new color… but the pace of change has slowed down, so many folks are perfectly comfortable keeping their old phone for four or five years, not just one or two years like in the early days.

Apple’s revenue surged during COVID, as everyone upgraded their devices for the remote school/work world, but was already flattening in the year before COVID, and has again plateaued since early 2022 — mostly because the biggest driver of revenue in any given year is the number of iPhones they sell, and that number has partly because the “refresh cycle” has slowed for the iPhone, and partly because they’re so dependent on China, but have been losing market share in that country to lower-priced domestic competitors (they still have a good position in the top end of the market, and Apple is in some ways a “luxury” product in China, though they’ve started discounting to try to stem their market share losses… in just the past year or so, according to most reports I’ve seen, they’ve fallen out of the top five in the Chinese smart phone market — they were number three 18 months ago).

The stock has done very well, obviously — AAPL has provided investors with almost 800% gains over the past decade, despite the fact that revenue has really only doubled during that time, and net income is up only about 150%. That’s partly because Apple has used its surplus cash to buy back lots of shares, so earnings per share have grown about 300%… but it’s mostly because of multiple expansion, as Apple shares have gone from being valued at 15X earnings in 2014 to about 34X earnings in 2024.

Sorry, got a little off track there — back to Lango’s pitch:

“My research indicates that in September Apple is set to release its first-ever product truly powered by Apple Intelligence from the ground-up.

“And as Apple goes public with its first Apple Intelligence device…

“I expect it to send shockwaves across the global tech industry…

“Even more so… I expect it to create some really exciting investment opportunities, especially for investors who position themselves correctly ahead of Apple’s big AI release…

“… what could soar thanks to Apple’s upcoming AI launch are the smaller stocks that I like to call Apple’s silent suppliers…

“And I’ve found three companies that I think could be working behind the scenes to bring Apple Intelligence to the mass market.”

This is an often popular investment strategy, particularly during the past 15+ years of iPhone dominance — try to figure out which companies will be involved with the next iPhone, supplying some needed part or service, and bet on those instead of betting on Apple. And the stocks of almost all of those suppliers have eventually disappointed, over the years, particularly in comparison to Apple shares, but there have been a few long-term winners that Lango highlights, like Broadcom (which has supplied a variety of chips for the iPhone over the years), Qualcomm (which provides the modem for the iPhone, though Apple has been trying to gradually squeeze them out for years by designing their own chips for that), and Taiwan Semiconductor (which makes the processors that Apple designs for the phone and their Mac computers — Apple has been Taiwan Semiconductor’s biggest customer for a long time, though it’s possible NVIDIA will lap them soon, given the high price point of their Blackwell GPUs).

Just FYI, Apple shares have given investors a total return of 4,370% since the iPhone was introduced in 2007. Qualcomm (QCOM) has been a dramatic under-performer for those 17 years, but Taiwan Semi (TSM) has also beaten the market, with roughly half of Apple’s gains, and Broadcom (AVGO) has blown everyone away on that front, with 13,000% returns, in large part because they really rode the AI wave over the past 18 months. For some context, Alphabet has “only” posted 1,300% gains during that time period, and NVIDIA has returned 35,000%.

There have been lots of Apple suppliers who had strong performance for a much shorter time period, like Skyworks Solutions (SKYW) when Apple first started using their amplifiers, and those stories even go back to the iPod days, with the screen and technology providers who made that music player possible. Everyone’s always looking for the little guy that might make a splash with an order from the world’s largest consumer electronics company… even if it can be tough for those little guys to thrive for long as Apple dependents, just because Apple tends to really squeeze suppliers on prices and take most of the advantage for itself whenever it can.

Selling a chip or component into the iPhone for the first time is a big moment for a small technology company, but it’s also a mixed blessing — kind of like a consumer product getting an order from Walmart for the first time. It gets you into the big leagues with a major revenue boost, and it “endorses” your technology to some degree, but it doesn’t necessarily bring a lot of profit.

Still, the excitement and possible revenue surge of a new little company making the big time is hard to resist. More from the pitch, which (of course) adds in some “FOMO” to make sure you are inspired to act fast… no surprise, investors who stop to think things over are much less likely to pull out their credit card and order a newsletter subscription:

“After all — some of these companies still have very small market caps…

“This means they still have a ton of upside…

“Not just 20% or 30% — but maybe 100% or 200% or even more…

“But if you want a real shot at capturing these gains, gains of this size…

“You’ll need to get into these potential suppliers fast.”

Well, Apple has already “introduced” Apple Intelligence, that happened at their Worldwide Developers Conference (WWDC) in June, and it was taken by many folks as a bit underwhelming, at least when it comes to likely product introductions for this particular year. The next iPhone might be less AI-powered at its launch than some folks expected… but AI is mostly a software product, so that can change fairly quickly if the phone’s processor is robust enough for some extra work.

And yes, the next iPhone release has now been scheduled, so although Lango’s guess of September 10 was reasonable, since they iPhone announcement almost always comes in that second week of September, it’s actually going to be on Monday, September 9 — at 1pm, EST, in case you’re curious enough to watch the live announcement.

So… who are these “silent suppliers?” More from the pitch:

“Of course, Apple hasn’t gone public with its first AI device yet, so most investors have no clue who any of their AI suppliers are or will be…

“But through my research, I’ve identified three companies that I believe are working to supply key parts of Apple’s first AI device…”

Here are the clues about the first one:

“One of these companies is trading for around $15 a share…

“And they recently announced that it has reached a development agreement with an unnamed Top 5 smartphone maker.

“In another press release, this same company mentioned that they’d struck a deal to become a supplier for an ‘unnamed California-based technology company.’

“Now, while the small firm hasn’t explicitly named its partner, simple dot-connecting here — top 5 smartphone maker, company based in California — strongly suggests that the partner is Apple. I personally would be shocked if it wasn’t.

“My best guess is Apple has asked the company not to explicitly reveal the details to maintain the element of surprise ahead of their big AI launch.”

Apple is famously very secretive about their suppliers, and also sometimes fickle with early-stage suppliers — they can often make development deals to help get a supplier off the ground, or test out their technology, and then drop it or decide it’s not ready for mass production in the iPhone… but they never talk about their suppliers, and forbid their suppliers from ever revealing that Apple is a customer. We often only find out about suppliers when the “teardown” specialists buy the first iPhone and rip it apart to identify the dozens of individual chips hiding inside.

This first one gets the lion’s share of the clues in this pitch… here’s what else he says about it:

“One of these companies is a small firm that produces advanced lithium-ion batteries…

“I’m talking about the type of batteries that Apple will need to power their new AI devices…

“What’s interesting about this one company in particular is they recently hinted at a partnership with Apple twice…

“In one press release, this company announced that it had reached a development agreement with an unnamed Top 5 smartphone maker.

“In another press release, this same company mentioned that they’d struck a deal to become a supplier for an ‘unnamed California-based technology company’ for that company’s mixed reality headset…

“Now, to my knowledge, there’s only one Top 5 smartphone maker in California that is also making a mixed reality headset — and it’s Apple…

“So, it’s pretty clear to me that this small company could be partnered up with Apple.”

I don’t know why Lango thinks those two press releases from the company necessarily hint at the same company, but it is, of course, possible.

He sums it up:

“The first company in this report has already made two big hints at a partnership with Apple. It’s a company that has developed its own proprietary battery technology that allows for a higher energy density and longer cycle life than conventional smartphone batteries. By the looks of things, this company is set to play a key role in Apple’s AI era.”

So who is our first “silent supplier?” That’s almost certainly Enovix (ENVX), which has similarly been teased by others as a potential supplier of next-gen batteries to Apple, with part of the argument being that the higher processor demands for on-device AI work will demand more power, which means new battery breakthroughs are needed.

And that’s all quite possibly true, though Enovix is certainly not going to be supplying batteries for the iPhone that is announced next week — those iPhones reached final design state many months ago, and will be rolling out at a pace of, they hope, millions of phones a week… and Enovix is not ready for commercial orders yet. Here’s how I summed it up in the Quick Take for our Irregulars three weeks ago, when Adam O’Dell was using a similar argument to sell subscriptions to his Green Zone Fortunes…

Enovix is indeed a developer of silicon anode batteries, which promise to provide more power in a smaller space, with less heat and less fire risk, but they’ve also been through a 3-4 year ordeal of over-promising on the commercialization of their battery technology, so they’ve disappointed a lot of investors who bought into the optimism during their initial SPAC deal in 2021. They are currently testing a small production line in Malaysia, and trying to build a larger commercial line for automated battery production, so they are nowhere near ready to be announced as a key supplier by Apple for its next iPhone, which will presumably be released next month… but who knows, maybe they’ll be ready for that kind of volume in a few years… if they execute and can actually produce these batteries at meaningful scale, with reasonable economics. ENVX actually looks more promising now than it did during the go-go days, if only because they’re actually closer to getting their fab working in Malaysia, but I don’t know what the odds are of them finally getting production streamlined, or how long it will take to really scale up to meaningful production. Might be an interesting long-term speculation if you think they can engineer their way through the production startup challenges… but it won’t be a breakthrough story with the next iPhone in September, so you can pause, take a deep breath — you’ve got plenty of time to think it over.

And that’s all still true, no “new news” from the company to speak of in the past few weeks… and yes, Enovix was a $15 stock, as teased… though that was back in July, it had dropped to about $11 by the time they released their last earnings report in early August, was at $10 when I covered that Adam O’Dell pitch, and is now around $8.50.

Who are the other winners?

“The second company in this report is behind an innovative AI-powered internet browser. Unlike Apple’s old Safari, this browser comes with its own AI system, a free VPN, a built-in ad blocker, and integrated crypto wallets. My research suggests that Apple could potentially partner with this company to integrate their browser into the new AI products.”

That one’s a repeat — here he’s hinting at Opera (OPRA), which offers a browser that competes with Apple’s Safari and Google’s Chrome. Lango also teased Opera, in ads for his more expensive Early Stage Investor newsletter, as a company that Tim Cook would mention at the WWDC in June, which he said could send the stock soaring over the summer. That hasn’t happened, and from what I can tell there hasn’t been much real speculation from anyone other than Lango that Apple will go so far as to feature Opera, or partner with Opera to replace its Safari browser with an AI-powered Opera browser. They did have a solid earnings report, giving the stock a nice one-day pop a couple weeks ago, but the OPRA share price is right around where it was when Lango first touted it in early June as the “secret weapon” for the “AiPhone.”

Since Opera wasn’t mentioned at WWDC, which really laid out the initial Apple Intelligence story, it would be surprising if Opera is some meaningful part of Apple’s iPhone announcement next week… but it remains a cheap tech stock, and a surprising survivor of a company as it has tried to make a living over the past decade in the very crowded and giant-dominated browser business, mostly by pushing into stuff like AI and crypto wallets and gaming within the Opera browser, and highlighting their privacy standards.

Earnings and revenue at Opera have been generally improving in recent years, thanks largely to a growing average revenue per user (ARPU), up 25% or so over the past year, which is driven mostly by better advertising revenue. They remain a niche player, globally, and they’re not making a ton of money from each customer (ARPU now averages $1.46/year/customer)… but at a big enough scale, that can work, and they do still have close to 300 million users for their browser (298 million monthly active users as of last quarter), and that’s a big enough platform to attract a lot of advertisers. Opera believes that they are being used, to at least some degree, by 7% of global internet users… though a lot of those users are lower-value, at the moment, because Opera is widely used for very low-end smart phones in developing countries, too, only about 50 million of their users are in the relatively lucrative “US and Western Europe” advertising markets.

The big argument for Opera is that you can get cheap growth — they’re expected to grow revenue and earnings by something in the 15-20% range per year, and the stock, at $14, is currently valued at only about 15X current year adjusted earnings (94 cents is the 2024 estimate) and 12X 2025 adjusted earnings ($1.17). That’s an unusually attractive valuation for a growing technology company, even if the expected growth is lower than the best earnings growth they’ve enjoyed in recent years.

I expect that whatever Apple does with AI over the next year is more likely to pressure Opera than to benefit them, just because that has generally been the way things have gone over the past decade — Opera has often been the most innovative browser company, but Google and Apple have always been pretty quick to copy their best features for Chrome and Safari. And Opera also depends heavily on Google for its search features and the revenue share on search advertising, and on large customers for direct ad sales, a lot of which come in by pre-installing “speed dial” links/tiles to major providers on the Opera home page (Amazon, Meta, Booking.com, etc.)

I still think Opera is a decent idea, and their focus on AI and gaming might help them continue to grow their “high value” user base, but it is also still a minnow in most ways, reliant on a small number of key partners for most of their ad and search business, so that probably means they’re more subject to surprises if those partners shift their strategies. And though they are focusing on AI, including with their Aria AI Browser, they’re probably also leaning on Google’s Gemini AI for that capability, and I don’t know how the cost of that AI processing gets allocated or might change in the future.

The valuation is appealing, which reduces the risk… and they don’t need to announce a new deal to rise 20-30% over the next year, they could do that just by earning a little trust from investors and catching up with the market’s average valuation multiple. This is still a very small company, especially relative to the other global internet browser providers, which is why they stand out as a survivor — and they’re pretty efficient, because they rely mostly on larger companies and don’t have massive R&D spending or own their own data centers or anything like that, so they pay a nice dividend (currently 41 cents, paid twice a year, which is a yield of over 5%)… and it might be that investors will again fall in love with such an idea, or at least in like — if OPRA were to move up to trade at the average PE of the S&P 500, roughly 22X forward earnings, that could boost the shares to $23. (We should note, however, that because Opera is so small, they’ve only got three or four analysts providing earnings estimates — analyst are never infallible with their predictions, but when there are only a few covering a stock, that increases the likelihood that they’ll miss something.)

But that’s all been true for quite a while, and it’s hard to guess at when the market might put more faith in OPRA — so it will probably require patience.

And never say never, but I don’t think there’s any reason to expect that Opera will be mentioned when Tim Cook introduces the next iPhone on Monday — they do sometimes highlight popular apps when introducing new iPhones, but rarely not outside browsers that compete with their own core Safari offering, and if they were going to somehow partner with Opera to incorporate Opera’s AI (and therefore also Google’s Gemini AI) into the core of the operating system, that would have made sense as an announcement at the developers conference, not during their new hardware launch.

Next?

“The third company in this report operates its own generative AI model, similar to ChatGPT. However, unlike ChatGPT, this company’s AI model tailors itself to your specific user activity. This aligns perfectly with Apple’s goal of creating personalized AI devices using Apple Intelligence. In June, Apple held discussions with this company to leverage its AI model, and I believe that as Apple’s first AI device goes live, there’s a good chance we could see them announce a partnership with this innovative AI company.”

That’s mostly a reference to the fact that Apple was widely reported to be in talks with most of the major AI companies about the possibility of incorporating their products in Apple’s own Apple Intelligence, possibly creating something almost like an AI “app store” that iPhone users could access to choose different AI models for different projects or tasks. I think that’s probably still very early-stage at this point, since it was only surfacing as reports about early negotiations a few months ago… but from what I can tell, there’s only one other public company, other than Alphabet, that Apple has reportedly been in negotiations with over possible AI integration.

And no surprise, that’s Meta (META), which does indeed probably “tailor itself to your specific user activity” more closely than any other AI platform outside of Gemini, just because it has access to all the deep, dark secrets that are hidden in your Facebook and Instagram activity. So it’s very likely that Lango is teasing Meta here, even though it’s not, of course, a particularly tiny or “secret” company… or one that would necessarily get a huge boost from a deal with Apple, even though, like most software providers, Meta does benefit from Apple’s massive distribution scale and the ability to reach its two billion device users.

The Wall Street Journal covered those rumored Apple/Meta talks a couple months ago, here’s a little excerpt of what they said:

“The longtime rivals have held talks about potentially integrating Meta’s generative AI model into Apple Intelligence….

“Meta and other companies developing generative AI are hoping to take advantage of Apple’s massive distribution through its iPhones—similar to what Apple offers with its App Store on the iPhone.

“A latecomer to generative AI, Apple has developed its own smaller artificial-intelligence models but has announced it will turn to partners for more complex or specific tasks. When Apple Intelligence was unveiled earlier this month at the company’s Worldwide Developers Conference, OpenAI’s ChatGPT was announced as the company’s first partner.

“‘We wanted to start with the best,’ said Apple software leader Craig Federighi, noting that ChatGPT ‘represents the best choice for our users today.’ He also said Apple wanted to integrate Google’s Gemini as well.

“In addition to Google and Meta, AI startups Anthropic and Perplexity also have been in discussions with Apple to bring their generative AI to Apple Intelligence, said people familiar with the talks.”

We’re still in the “land grab” part of the AI enthusiasm cycle, when the large companies are just desperate to make sure they can earn a share of the early market, and get good distribution that will deter other possible competitors… and because of the massive cost of training and inferencing for AI, including buying up millions of NVIDIA chips and paying for power usage, the money being spent is almost mind-numbing at this point. All the huge tech companies are much more worried about spending too little on AI than they are of wasting money on AI. And nobody, other than NVIDIA and some other hardware sellers who are getting a piece of the data center capital spending boom, really seems to be at all close to figuring out how to actually profit from AI at this early stage.

That probably means companies like Alphabet, Microsoft, Amazon and Meta have the advantage through this cycle, since they’re not at risk of going bankrupt if the business model for profiting from consumer AI products fails to emerge after a couple years… but the startups like Open AI, Perplexity, Anthropic and many others are certainly extremely well-funded right now, and I certainly don’t know how it will shake out.

For the purposes of this teaser pitch, though, it doesn’t look like Apple is really betting on one winner, either… they’re just trying to make sure they can integrate any successful AI products into their world-leading hardware, be positioned to make sure they don’t lose out to some entirely new product or business model, and continue to collect their share of whatever riches might eventually come from that.

Here’s a little sum-up from Lango about how he thinks this will go…

“I believe Apple will actually discontinue the iPhone as we know it…

“Right now, the whole world expects Apple to roll out the next iteration of the iPhone in September…

“Which, on paper, should be the iPhone 16.

“But I think it’ll look and function more like an “AiPhone 1”.

“… with an AiPhone, billions of people will be able to enjoy the perks of a personal assistant without having to employ one at $57,000 a year.

“And it won’t stop at the AiPhone.

“Apple will eventually make their other products AI-enabled…

“Right now, Apple sells about 200 million iPhones a year…

“But with the velocity that AI has, it’s not far-fetched to think that Apple could at least double those numbers with an AI-powered phone…”

I’m sure Apple would be delighted by that, and there are some analysts who think that a new suite of AI-enabled features could be the “next big thing” that actually speeds up the new iPhone replacement cycle and inspires more folks to trade up. Which might even be bigger news for Apple itself than for any of its partners or suppliers, though since Apple already trades at a nosebleed valuation for a no-growth company it could also be that investors are already out ahead of analysts, and already assuming a huge new refresh cycle for iPhone orders.

And Lango also throws in a second set of “silent partner” companies, longtime Apple suppliers, on the hardware side, who would presumably get a big boost if iPhone sales really double again over the next couple years. He “gives away” one of those ideas for free, that’s Taiwan Semiconductor (TSM), here’s how he pitches that investment:

“They currently produce Apple’s processor chips…

“And as Apple makes their big pivot into AI…

“I’m confident TSM will soar…

“That’s because TSM is at the forefront of semiconductor manufacturing, and semiconductors are essentially the “brains” of AI.

“They help process the vast amount of data that’s used to run AI systems…

“Which means that as Apple pivots into the AI market, they’ll need even more advanced chips, and TSM’s cutting-edge technology can provide exactly that, advanced semiconductor chips for AI.

“So you’ll want to get into them right away, because they could play a key role in Apple’s AI pivot.”

I imagine that TSM will continue to grow with chip demand overall, particularly high-end chip demand, in part because competing chip foundries like Intel and Samsung are having a tough time trying to catch up with TSM… but it’s hard to say the stock is particularly attractive at this level, since they’re now much more well-known and richly valued than they were a couple years ago, and semiconductor stocks, in general, are about as richly valued as they’ve ever been. The world has gradually forgotten that chip companies have always gone through big boom/bust cycles, and that buying after a long surge into the “upslope” of the boom can be awfully risky, but that doesn’t necessarily mean the “bust” is coming anytime soon.

The big thing holding back investors from betting bit on Taiwan Semiconductor, which is by far the largest company in Taiwan, has often been the political risk caused by China’s claims on that country, and by the near-constant brinksmanship among the US, Taiwanese and Chinese navies in the Taiwan Strait, which means there’s always some risk that the tipping point which leads to a shorting war and some kind of blockade or embargo has worried investors for more than a decade. Without that risk, it would be pretty easy to assume that the world’s biggest semiconductor foundry, with a meaningful technological lead and full order books, is easily worth 25X earnings… but things can always change, too, and TSM did spend most of the past 20 years as a slow-growth company, valued at about 12X earnings. We’ll see how the future evolves.

And with that, dear friend, I’ll leave you to daydream about what Tim Cook might announce on Monday, and whether that announcement might spur excitement for any Apple partners. Have any enthusiasm for Opera, Enovix, Meta, Taiwan Semiconductor or other names to share? Let us know with a comment below… thanks for reading!

P.S. I promised to counter Luke Lango’s claims whenever his ads call out the fact that TipRanks lists him as the #1 stock picker — and they do make that claim this time around, too, in the ad Lango says that, “in 2020, I was voted the ‘#1 stock picker in the world’ by TipRanks — a company that tracks the performance of over 96,000 financial experts, including hedge funds, Wall Street analysts, and more.”
So I will at last applaud them for not implying that he’s currently #1, as they’ve done in other recent ads. As of today, just FYI, that same site lists him as almost the worst stock picker in the world, number 37,456 out of 38,708 “experts.” I have no particular confidence in the merit of TipRanks’ rankings when it comes to choosing a pundit who’s worth listening to, but, well, live by the sword, die by the sword.

Disclosure: Of the companies mentioned above, I own shares of NVIDIA, Alphabet and Amazon. I will not trade in any covered stock for at least three days after publication, per Stock Gumshoe’s trading rules.