Virtual reality ("VR") is becoming a high-stakes game. And Apple (AAPL) just went all-in...
On June 5, the consumer-electronics giant announced its first major new product in nearly a decade – the Apple Vision Pro. This device uses what's known as "mixed reality" technology, a combination of virtual and augmented reality.
The Vision Pro is a ski-goggle-sized headset. It lets you overlay computer graphics over the real world... promising a new, "spatial" computing experience. For $3,499, folks will be able to experience their apps in 3D space.
It's a big gamble on the future of VR. The announcement caused some volatility in AAPL's share price... And many VR bears are saying it's the "beginning of the end" for the giant.
But they're likely getting ahead of themselves. Let me explain...
Many investors see the Vision Pro headset as a blunder. And they're pointing to Apple's stock chart as the proof.
In the lead-up to the Vision Pro announcement, AAPL's share price hit an all-time high. Then, after the news came out, it plunged almost 2% over three trading days.
Some publications are suggesting that Apple has peaked...
- The day after the announcement, Yahoo Finance published an article titled, "Apple's big unveil met with a whimper."
- Wired magazine followed that on June 8 with an article titled, "Apple's Vision Pro Isn't the Future."
- On June 6, Videogamer.com opined, "The Apple Vision Pro misses the point of VR, and will flop as a result."
But don't let the sensational headlines fool you. It's a mistake to bet against Apple based on last Monday's price move alone.
True, if you break it down, the timing of the drawdown on announcement day looks significant. AAPL took a big dip almost exactly when the Vision Pro was revealed. Take a look...
It looks like the market rejected Apple's new offering in real time. But if we expand our view, two important points suggest something else is at work...
First, historically, this isn't a huge one-day move for the stock. AAPL only fell about 0.8% on announcement day. The company's share price has fallen that much or more on about 32% of trading days since 1990.
So the odds of last Monday's move are about one-in-three – well in line with the historic range.
Second, when we zoom out, there's a much likelier reason for the dip in Apple's shares... And it plays out just about every time the company debuts new tech.
Take a look at the one-day returns on the dates of Apple's other big product reveals...
With the exception of the iPhone, Apple's share price tends to stay flat or fall when it makes its biggest announcements. The average drawdown is about negative 0.6%, right in line with last Monday's dip.
The repeated price falls after these launches comes down to a popular investing strategy: "Buy the rumor, sell the news."
Investors will use new product hype as a buying signal for a company. This lets them profit as anticipation pushes up share prices. Then, when the product is finally revealed, these investors quickly exit their positions. This helps them avoid the downside if the news ends up misfiring.
This strategy is likely what caused the fall after Apple's Vision Pro announcement. It has little to do with the actual product – and everything to do with the news cycle.
We can't know yet if the Vision Pro will succeed. But don't assume the market has written off the new device already. Last week's volatility is right in line with history... We haven't seen the end of Apple.
Good investing,
Sean Michael Cummings
Further Reading
One trend in technology is sticking around whether we like it or not... the ever-present tip screen at the end of the checkout line. Right now, the market is betting against the company that's accelerating "tipping culture." But that's likely a mistake... Read more here.
Investors are going crazy for new tech-like artificial intelligence... and leaving the "boring" sectors behind. That means we have a contrarian opportunity to buy some of the economy's most reliable businesses while no one is paying attention... Learn more here.
HIGHS AND LOWS
NEW HIGHS OF NOTE LAST WEEK
Alphabet (GOOGL)... tech "World Dominator"
Oracle (ORCL)... database and cloud services
Netflix (NFLX)... video streaming
Spotify Technology (SPOT)... audio streaming
Uber Technologies (UBER)... ride-hailing giant
Sony (SONY)... gadgets and entertainment
DraftKings (DKNG)... sports-betting leader
Honda Motor (HMC)... automaker
Ingersoll Rand (IR)... manufacturing
MasTec (MTZ)... infrastructure and engineering
Otis Worldwide (OTIS)... elevators and escalators
D.R. Horton (DHI)... homebuilder
PulteGroup (PHM)... homebuilder
Toll Brothers (TOL)... homebuilder
NEW LOWS OF NOTE LAST WEEK
Target (TGT)... big-box retailer
Dollar General (DG)... discount retailer
Estée Lauder (EL)... cosmetics
Advance Auto Parts (AAP)... auto parts
