A lot is being made of predictions for huge growth in Apple (NASDAQ:AAPL) service revenues.
Some analysts are throwing around the "T" word, as in trillion, to describe the potential.
There is enormous potential in cloud-based services. But gaining traction in cloud has cost companies like Amazon.com (NASDAQ:AMZN), Alphabet (NASDAQ:GOOG) (NASDAQ:GOOGL) and AT&T (NYSE:T) $1 billion in capital every quarter, for years. If Apple really wants to be a cloud leader it has to start investing like one.
I have seen Apple investing $1 billion into a China-based Uber competitor. I have seen Apple invest in a new Hyderabad office to improve its Maps software but that is just $25 million and will employ just 4,000.
If Apple is going to be a cloud leader it would help if the cloud didn't go down all of a sudden, as it did last week. It would help if reports didn't come out about the cloud engineering team fighting for resources, and leaders quitting in frustration.
Apple is reportedly spending $10 billion on "new ideas," but there has been little said about, specifically, where that money is going. Based on press reports it's probably all going into software. Virtual reality is mainly software. Payments are entirely software. A Watch-based operating system is software.
If Apple is serious about offering a "family plan" of services, aimed at increasing spending to $30 per customer per month for entertainment and back-end file storage, then it needs to make its iCloud as robust, scaled, and redundant as Amazon Web Services has become since the days when it crashed Netflix (NASDAQ:NFLX) at Christmas, which happened in 2012. I see no evidence that iCloud today is even as robust as AWS was then, and I am seeing the same kinds of outages today that plagued AWS back in the day.
This tells me that Apple is years behind on its cloud investment, if it is going to create the kinds of revenue streams analysts are hoping for, and if it expects to control that business, rather than doing what Netflix does and pass it on to Amazon (which will then offer its own services in direct competition).
Apple is holding its annual Worldwide Developer Conference next month (original story said next week), and a new version of iOS is reportedly in the works, as well as refreshing App Store services and software. But if these are not backed up by heavy investment in cloud, to the tune of billions of dollars every quarter, I can't see increasing my present Apple position, and if the stock crawls over $100 again I am selling.
Disclosure: I am/we are long AAPL, AMZN, GOOGL.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.