Can Ternus Come Up with the New Story That Apple Stock Badly Needs

Apple (AAPL) has announced a leadership transition plan, and long-time CEO Tim Cook will become the executive chairman, handing over the baton to John Ternus, who is currently the senior vice president of Hardware Engineering. In its release, Apple said that the transition, which would be effective Sept. 1, 2026, “follows a thoughtful, long-term succession planning process.”

To be sure, the leadership transition isn’t unexpected, even though it came somewhat sooner than most expected. Markets, however, didn’t give the stamp of approval that the company might have wanted, and AAPL stock closed over 2.5% lower yesterday, April 21, underperforming the S&P 500 Index ($SPX).

Tim Cook’s Legacy at Apple

Meanwhile, Cook, 65, leaves a rich legacy behind. Apple’s revenues quadrupled under his leadership as the company established itself as the premier smartphone seller globally. Cook’s greatest strategic move was the focus on services, turning Apple users into recurring subscribers. The services business is quite lucrative for the company, and the segment generated a gross profit margin of 76.5% in the most recent quarter, compared with 40.7% for Products.

Cook’s strength has been in logistics and supply chain, which was on full display amid the tariff chaos, when Apple was able to move the bulk of iPhone production to India almost seamlessly to evade the stiffer tariffs on China.

Apple’s market capitalization was just about $350 billion in 2011 when Cook took over. Under his watch, the company became the first-ever U.S. company to hit $1 trillion, $2 trillion, and $3 trillion market cap milestones.

Apple Lost Its Position as the World’s Biggest Company

Since becoming the world’s largest company in 2011, the iPhone maker has held on to the position for the most part, aside from a few brief incursions. However, things started to change with artificial intelligence (AI), and Apple lost its coveted position as the world’s biggest company. It was Nvidia (NVDA) that became the first company to hit a market cap of $4 trillion and $5 trillion. 

As things stand today, Apple is third in the pecking order of most valuable companies, trailing both Nvidia and Alphabet (GOOG) (GOOGL). It's no surprise that both these companies have been AI winners. Nvidia’s chips are the bedrock for building AI infrastructure, while Alphabet has proved its mettle by protecting its turf from AI upstarts like OpenAI. 

Of late, Alphabet has been in the news for its chips business. Notably, Alphabet has been pushing for third-party sales of its Tensor Processing Unit (TPU), which is pitched as an alternative to Nvidia’s graphics processing units (GPUs). Its TPUs are being used by Anthropic, while Meta Platforms (META) is said to have signed a multi-billion-dollar deal to rent these. Apple, too, has partnered with Alphabet, under which the iPhone maker’s Foundation Models will be based on Gemini models.

Apple Is Seen as an AI Laggard

While Apple came up with “Apple Intelligence” features in its smartphones, these weren’t exactly groundbreaking, and often it appeared to be playing catch-up with its competitors. For example, despite Siri having the first-mover advantage in the digital assistant space, it is still well behind AI assistants offered by the likes of OpenAI.

Apple is seen as a laggard in AI, and its price action is testimony to the pessimism. AAPL is up just about 57% over the last three years, while the tech-heavy Nasdaq Composite Index ($NASX) has almost doubled over the period. If not for Microsoft (MSFT), which is also battling several headwinds of its own, Apple would have been the worst-performing Magnificent 7 stock during that timeframe.

Notably, one of the reasons Apple is running behind in AI is the company’s focus on privacy, which is atypical for AI that feeds on massive amounts of data. The company would need to strike the right balance between privacy and personalized AI features, as it can neither be seen as an AI laggard nor can it compromise user privacy, which is its USP.

Apple Needs a New Story

Apple hasn’t had any product with runaway success since the iPhone, and its Vision Pro mixed-reality headset failed to take off. The company needs its next “iPhone moment,” especially as the race for the next computing platform heats up with companies like Alibaba (BABA), Meta Platforms, and, apparently, even OpenAI looking to crack the code with smart glasses.

At a forward price-to-earnings (P/E) multiple of nearly 32x, I don’t find Apple’s risk-reward attractive. I sold my positions earlier this year and am not inclined to add more shares unless the company comes up with something out of the ordinary, of course, by Apple standards.

All eyes will now be on Ternus, who has big shoes to fill. His appointment comes at a time when Apple badly needs a new story, as the existing narrative and growth might not help it justify the premium valuations.