Instead of framing Apple's self-driving car ambitions around vehicle design, investors could view Apple's new Volkswagen partnership as another investment in the hardware giant's growing services business, venture capitalist Gene Munster said in a note.
Apple is providing software for automaker partner Volkswagen, according to report this week in The New York Times. The report indicated that Apple has adjusted its self-driving dreams in recent years, resigning to work with Volkswagen after earlier negotiations with several automakers fell through — in part because Apple was hesitant to relinquish control over the vehicle design.
But Munster, founder and managing partner of Loup Ventures, views Apple's software and services endgame as an upside for the stock. And even if Apple bows out of the hardware design in cars, he said the company could still benefit from offering car services.
"The concept of an autonomous service is a departure from Apple's current hardware and content services business. Specifically, delivering their experience through third party hardware is a strategy that Apple rarely employs," Munster said. "That said, we believe, given the complexities of manufacturing a car (just ask Tesla) and the size of the opportunity, it makes sense for Apple to partner their way to autonomy. "
Any resulting Apple-Volkswagen vehicle, Munster said, is likely to yield an "Apple-like experience."
Apple's software and services segment — the App Store, Apple Care, Apple Pay, iTunes and cloud services — has been a particular growth point for the iPhone maker in recent years. CEO Tim Cook said in January 2017 that he hoped to double revenue from the group — then $7.17 billion — by 2020. The company earlier this month reported a 31 percent year-over-year increase in the segment's revenue to $9.2 billion during the March quarter.
Morgan Stanley said this week that the market is undervaluing Apple's services business, predicting the company's services business will represent 67 percent of Apple's sale growth in the next five years.
Munster, previously a top Apple analyst on Wall Street, recently told CNBC that Apple is leaving money on the table by failing to capitalize on the growing subscription economy. A long-term self-driving software play might make up the difference.
"Autonomy is one component of optionality that is currently not reflected in Apple's share price along with AR, original content, and health," Munster said.
Shares of Apple have hit record highs in recent weeks — gaining more than 10 percent in 2018 and more than 20 percent in the past 12 months. The stock price as of Friday's open was just $15 per share shy of a $1 trillion market valuation for the company.