Craig Moffett, Moffett Nathanson founder and Dominic Rizzo, T. Rowe Price Global Technology Fund portfolio manager, joins 'Squawk Box' to discuss the challenging times for Apple CEO Tim Cook, the threats Apple faces and much more.

Cupertino

Apple is facing scrutiny from some analysts due to slowing growth, product delays, and underwhelming performance in artificial intelligence (AI) software. Despite calls from some quarters for CEO Tim Cook to step down, industry experts Craig Moffett and Dominic Rizzo argue that leadership change is not the answer. They highlight Cook's successful tenure, noting a significant increase in Apple's stock price under his leadership, and point out that many of the challenges Apple faces are structural and industry-wide, such as macroeconomic headwinds and manufacturing issues.

The discussion also emphasizes that Apple's main struggle is its lag in AI software, which has impacted its competitive position relative to other technology companies. While Apple maintains strong hardware and a loyal customer base, analysts suggest that significant improvements or acquisitions in AI capabilities are necessary to drive future growth and encourage customers to upgrade their devices more frequently.

Apple's answer is not to get a new CEO, says Craig Moffett

Well, Apple is reportedly planning to announce a new lineup of products in early 2026. Bloomberg says this includes a low-end iPhone 17e, updated iPads, refreshed MacBook Pros and Airs, and a new external Mac monitor. The news comes as some analysts call for CEO Tim Cook to step down amid concerns over the company's slowing growth and product delays. Joining us now is Craig Moffitt, Moffitt Nathanson, founder and senior managing director, Dominic Rizzo, T. Rowe Price Global Technology Fund portfolio manager. Let's be clear, this is Walter Pysik over at LightShed Partners. They spoke to One Fast Money a couple nights ago when his note came out. And Craig, I'm just wondering, because you've been a bear on Apple for quite some time. It's been a great call. Apple stock is down 15% so far this year. Is the answer to get a new CEO? Good morning, Melissa. No, probably not. I mean, look, let's step back for a second. Tim Cook has presided over a 15-fold increase in Apple's stock price. He's trying to fill the shoes of the person who is broadly regarded as the greatest CEO in history. So those are big shoes to fill. That's obviously a pretty tough compare. But he has been an extraordinarily successful CEO. You'd hear all the arguments about he's a process guy, he's not a product guy, and that sort of thing. Perhaps that's true. But they have been extraordinarily good at process, and it's generated a huge amount of value. And I don't know that you can look to the CEO as some kind of messiah who's going to generate the next product idea by himself. Apple is struggling because, number one, they are struggling with an answer to AI. But, number two, they have a lot of macro headwinds against them, like tariffs, at a time that they're trying to manufacture in China. Tim Cook started 10 years ago to try to transition that to India. So it's not like he's been caught entirely flat-footed. It's just these are hard problems to solve. That's all. Yeah. Dom, I'm curious what your thoughts are. You are underweight, I believe, in your portfolio, Apple, relative to some of the other Mag 7 stocks. So what causes your hesitancy? And maybe it is no surprise that Apple wouldn't fare as well in this environment as, say, a Meta, which has had an unbelievable performance this year relative to the group. Since Apple is a hardware manufacturer, it does face a lot of these threats that others do not. First off, thanks for having me, guys. It's great to see you. When I look at Apple, I really have a balanced approach here. On the positive side, just look at how much time you spend on your screen every day. It is still the most important product in the world, the iPhone. We also have wonderful unified memory architecture on the silicon side, which theoretically is great for AI. Now, Craig made a great point, though. The reason Apple is struggling, frankly, is because they're nowhere in AI software today. And that's why we're underweight across all of my strategies. When I look at the AI software that Apple has delivered, it's really disappointed on every level, whether it's small language models, large language models, Siri, AI on device. And I think they need to make some fairly drastic changes on the AI side to get that upgrade cycle back, which is elongated to one of the longest levels ever. So I actually think they have to go turn around and make some acquisitions to make this work. Maybe something like a Perplexity could solve some of their problems. Craig, is the only answer an in-house AI solution, or can it be the best delivery system for AI software that it licenses or partners with another company? Well, I think it can theoretically be either one. But here's the problem, Melissa, and I don't hear this enough. And Don made a great point. Look, to believe in Apple stock, and again, you called me an Apple bear. I'm not an Apple bear. I think very highly of the company. I just think it's a very overvalued stock, that's all. And I think they face some secular challenges that are not reflected in the stock price. Part of that is the market is discounting an extraordinary acceleration in the upgrade cycle, right? Remember, go back to last year's WWDC, when the stock price ran up because everybody thought, here comes AI, and AI is going to require eight gigabytes of memory. It's going to require a neural processor. And that means that everybody with a phone that's earlier than an iPhone 15 Pro is going to have to upgrade their handset, and that's going to be a giant cycle, and it's going to be perpetuity, and blah, blah, blah, blah, blah. If you go off the device and you choose a solution that's in the cloud, that will work. It may give up something on privacy, although you can probably run it on Apple hardware and Apple data centers. You can probably win the privacy argument. But if you take it off the device, you've given up the argument for why there's an upgrade cycle. And so I think you have to step back and say, OK, no one's arguing here that Apple customers are going to switch to Android. That's not the issue. The issue is, what is it that's going to drive an upgrade cycle and a permanent acceleration in the rate at which we upgrade phones, such that you can work your way into a 28 times multiple and a peg ratio that's, right now, almost two and a half times? Yeah.

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Jerusalem

Middle East Conflict

Israeli strike kills children near medical clinic in Gaza

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Kyiv

Ukraine Invasion

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Tel Aviv-Yafo

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Camarillo

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Washington

Global Tariffs

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Center Point

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Texas

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Kuala Lumpur

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Ventura County

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Los Angeles

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San Francisco

Yaccarino steps down as CEO of Elon Musk's X

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Moscow

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Kerr County

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Sana'a

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Ontario

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Marseille

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Cernadilla

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French President Emmanuel Macron arrived in Britain on Tuesday for a state visit mixing royal pageantry with thorny political talks about stopping migrants from crossing the English Channel in small boats.