And then there was just one: Apple . That’s how I felt about last week where the market took a huge number of stocks out and shot them, including some of ours — more on that when we get to Thursday’s Monthly Meeting for Club subscribers — but the sellers could not stop Apple, the most unlikely of winners for this moment, and one that defined last week’s tape. Why did Apple’s glorious run unfold as it did? That 13% weekly advance, its best in more than five years, was the result of a short squeeze plain and simple, and it couldn’t be contained. Going into last week, Apple had everything a short-seller wanted. It was the most likely of stocks to expect a monster rollover. But it backfired into one of the most remarkable short-squeezes I have ever seen. Let’s use the Apple squeeze as a bizarre metaphor for the market itself, which, judging by the major averages, appears to be a paradise for the longs. But the averages are distorted by the positive action in a handful of stocks, Apple being the most notable. Case in point: the traditional market-cap weighed S & P 500 climbed 2.4% over the past week while a modified version of the index that assigns each company the same influence, known as the equal-weight S & P 500 , advanced merely 0.8%. Apple’s move last week was just so dazzling that it obscured everything else that was happening, and most of the action that was obscured was negative. As impossible as it might seem, leading into last week, a $3 trillion company became the object of every short-seller’s desire. I don’t cavort with many short-sellers — I don’t cavort much with any money manager, lest they know what I am working on. But the anti-Apple chatter on Wall Street ran so deep that you couldn’t avoid it: Apple’s stock was headed to $175. How could that be? Why was this short considered such a layup? Let’s dissect. AAPL .SPX YTD mountain Apple’s year-to-date stock performance versus the S & P 500. First, good short-sellers like to go after either the most white hot of companies — in the current moment, that’s a name like Palantir — or companies with a stock that is already rolling over, like that of Apple. Short-sellers are betting a stock will decline in value. They borrow shares and promptly sell them back into the market, with the intention of buying them back once they’ve dropped in price. If that happens, they then returned the borrowed shares and profit off the difference. However, if their targeted stock goes up in price, a short-seller may decide to “close out” the trade and buy back shares, adding fuel to the rally. Palantir is a dangerous short bet because it’s more of a sports team with a rabid fanbase than it is a company or a stock. The software provider is seen as being a pure artificial intelligence consultant, which is very important in a market that thirsts for pure AI plays. Palantir seems to have the ability to report any numbers it wants to, including numbers that give it the best “Rule of 40” score anyone has ever seen. Palantir has somehow convinced everyone that once it wins a contract, the client immediately starts saving — and making — money. The Palantir buyers believe it because Palantir has convinced them that it has a mysterious, even magical, AI formula. Betting against magic is real perilous to a short-seller’s health, as we have learned endlessly for those who bet against this monster. Which brings me back to Apple. As much as Palantir has a modus operandi that is all in on AI, Apple has an M.O. that is regarded as AI-less to an extreme. What do we hear about Apple and AI? First, we hear how they’ve failed to develop anything we want or even consider generative AI. Announced to much fanfare last June, its suite of AI software tools dubbed Apple Intelligence is widely ridiculed and key features like an AI upgrade of Siri have been delayed. Second, we hear that they seem to not realize how important it is to have an AI strategy in this technological race. We also see the headlines about the company losing people who might, or might not, be working on AI, which may be the reason they seemingly have no AI strategy. In this tape, it’s a must to have AI. That’s obvious. We in the media cannot resist asking business leaders questions like, “How are you using AI?” And we ask it to any CEO, no matter how clueless they may be about AI and how little they might need AI. Because they know the AI question is coming, they are ready for it. Most of the time their answers sound rehearsed, kind of like when I delivered my lines playing Lieutenant Rooney in “Arsenic and Old Lace” as a junior in high school. We accept their by rote answers and move on knowing that the AI box was now checked — by both of us, questioner and questionee. You can’t get that box checked with Apple. Therefore, you have the start of an amazing short bet given that there is no AI answer in sight. Worse, the best way for Apple to get high-quality AI was to get paid to take someone else’s AI model and incorporate it into its devices. You give Apple money, and it gives you their massive base of iPhone users and bragging rights, worth a huge amount of money. But that route may no longer be open to them because of a crucial win by the Biden-era Justice Department against Alphabet last year, one where a federal judge deemed Alphabet and its search-engine business violated Section 2 of the Sherman Antitrust Act, which outlaws monopolies. The lawsuit was initially filed in October 2020 during the first Trump administration. Recall that Google pays roughly $20 billion a year to Apple to make its search engine the default on Apple’s devices. At one point, Apple might have been waiting for any of the generative AI-infused search engines to come along and pay them $20 billion to do the same thing to block any other comer. However, that kind of relationship may be kaput because of the Justice Department’s win against Google. We are awaiting a remedy ruling from Judge Amit Mehta of the U.S. District Court for the District of Columbia. That decision could come down any day now, maybe even this week. As part of that ruling, it is expected that Apple will no longer be able to receive Google’s $20 billion in what is basically free money. That decision could hurt Apple’s bottom line. and it will make things painfully obvious that Apple isn’t going to get $20 billion from, say, Perplexity, to be Apple’s AI search bot. That payment would become the object of the most obvious antitrust case in the world. Even this Justice Department would sue Apple for making that deal. So what do the short-sellers know about AI and Apple? Mainly they know that it doesn’t have a strategy — in itself a great reason to short it — and second, they know it isn’t going to get anyone to pay it for sending Safari users to their AI bot. I think many big short-sellers have also been betting against Apple precisely because that remedy ruling is imminent and the ruling could mean that Apple could immediately lose that $20 billion from Google. There’s a lot of money to be made being short Apple when this ruling comes down. But the federal-court cavalry didn’t arrive in time for last week’s squeeze. The Google case has forced Apple either to develop its own AI or buy an AI company, presumably Perplexity because it is the one that seems the most unencumbered. Apple is legendarily unwilling to buy anything big. I know it because I begged them to buy Netflix several times when the putative target was worth about $25 billion to $50 billion, and Apple’s management seemed determined to rule that out along with anything else that came to mind. However, Apple CEO Tim Cook did recently tell me in a call to discuss its quarterly earnings that Apple is willing to do a big acquisition. So don’t take it off the table just yet. Nevertheless, the combination of not getting paid the $20 billion from Google — and perhaps paying an outrageous amount to buy Perplexity outright — is not something you want to buy the stock of Apple for. That, of course, is only one very complex reason to be short. The other one seemed even more of a layup than the lack of an AI strategy: the wrath of President Donald Trump. Apple’s manufacturing approach had been all about China, which was helpful as the company courted the Chinese consumer. But that, of course, was not the only place made-in-China iPhones were destined. They were headed to the U.S. No one could match the Chinese for both quality and price. We keep hearing that the supply chain is there and the supply chain is the best there is. But when Trump returned to office in January and started going after China, Apple pivoted to ramp up iPhone production in India at global scale. Apple’s key supplier Foxconn first started making iPhones in India in 2019 and some of the supply-chain issues that arose during the Covid-19 pandemic contributed to additional emphasis being placed on India as a production hub. Then came Trump 2.0, and Apple leaned even further into India as the source of its U.S.-bound iPhones. Ultimately, Apple wants to make all of the phones it is shipping to the U.S. in India, and its Chinese phones are meant to be sent to the rest of the world to minimize tariffs all the way around. What Apple didn’t count on was not only that the president didn’t want iPhones made in China, he also didn’t want them to be made in India. Until most recently, India was thought to be a decent ally and a good, getting-to-be great place to build phones. Then it became evident that Trump didn’t like that India had become somewhat of a weird ally/client state of Russia because of Russian oil, and that the president did not want any iPhones made anywhere but the U.S. He was quite vocal about his displeasure. When I interviewed Cook and asked him about his relationship with Trump after Trump had called him out for doing business in India, he said the relationship was a good one. If you were short Apple and you listened to my endless iterations on air of that proclamation of friendship, you would have thought twice about staying short. But I am sure the shorts thought it nothing but dross. It turned out the relationship was, indeed, a good one, and after Apple committed another $100 billion in U.S. investments was pledged on top of the previous $500 billion, it morphed into a great one — great enough to make Apple exempt from tariffs. It could be a double win because Samsung, with 30% of the U.S. market, will see its phones marked up by tariffs, which could make the iPhone cheaper, or at least not as expensive as it has been, versus its Korean opponent. Sure, you may not think it matters and it is awfully difficult even for the government to spend $600 billion unless the money goes to the Pentagon or the interest on the national debt. But all that matters is that Trump endorsed Apple’s actions. Oh, and if you needed one more reason to be short: Apple had a very good last quarter, but it was presumed that the success of the quarter came from pull-through to beat the tariffs and it wasn’t regarded as consequential. A panned upside surprise. So, let’s wrap up the metaphor: Apple has no AI strategy and even if it gets one, it will have to pay through the noise for it, perhaps endlessly, as you need all the chips that fellow Club name Nvidia makes to have a winning AI offering. The shorts were hoping that the remedy phase would be done and Google would have to suspend payments to Apple. They figured Apple would have earnings cut big by the Indian tariffs. And numbers were expected to come down anyway. Sell, sell, sell. Now we know that the remedy phase ruling is still out there — and so is a potential earnings shortfall — but it looks like the shorts couldn’t ride things out. Plus, the longs were attracted to a once-expensive stock that hadn’t gotten this cheap in ages. I’ve had an own-don’t-trade philosophy toward Apple for ages but even I was struck about the run from $210 a share to $220 in after-hours trading early last week when Trump blessed Apple’s largesse. But that’s what happens when the shorts start to panic. All of this occurred at a time that most of the market was rolling over except, weirdly, medical technology names — check out Becton Dickinson , Medtronic and our Abbott Labs — and some scattered retailers, including Club-owned TJX Companies , a heavily shorted stock for no reason other than the chart. Of course, looking back, the window to win as a short-seller is always on the verge of being closed when you’re betting against companies with good management teams and great balance sheets. In the case of Apple, though, the negatives we just ran through were too juicy to ignore. It just seemed like Apple’s fall was destined. It was a natural decline that had only just begun, a safe short in a lousy tape. Instead, it turned out to be the best long in a terrible tape. And that’s how the Apple squeeze unfolded, taking the entire averages up with it. Sure, the averages were helped by Nvidia’s strength, but that’s done by longs, not shorts. Will other stocks follow Apple’s lead next week? I think that given it was a squeeze, that seems unlikely. But what could have been more unlikely than Apple being at $229.35? Nothing that I have ever heard of. That’s for certain. (Jim Cramer’s Charitable Trust is long AAPL, NVDA, ABT and TJX. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
The secret fuel behind Apple’s dazzling rally, and what it means for the top-heavy market
