Apple is charting a new path to bring more users into its valuable ecosystem. It’s a money printing machine with modern hardware as the lure and services as the hook. The tech giant unveiled its most affordable laptop ever with the launch of the MacBook Neo last month. The Neo has a starting price of $599, almost half the price of some of Apple’s high-end laptops. Apple’s new MacBook Air 13-inch M5 model starts at $1,099, while the 16-inch MacBook Pro with M5 Max starts at $3,899. All three laptops were announced during management’s three-day hardware blitz in March. The Neo is Apple’s most obvious attempt to compete with low-cost laptops like Google’s Chromebook models and entry-level Windows machines that start at about $300 or less. “[The Neo]is a much more attractive product at this price point than a PC with the same specs,” Chandler Whisson, an analyst at research firm M Science, said in an interview with CNBC. “That’s a really big advantage.” Neo is a little pricey, but it’s an attractive option for cash-strapped consumers who need to do simple tasks like writing, browsing the web, and using artificial intelligence chatbots. For example, college students are the perfect market. Apple is also catering to them through a $100 education discount. This strategy is not new to Apple. Management has been proving the same thing to investors for decades. The idea is that by entering an existing category and creating a better mousetrap, sales and stock prices will rise. The strategy also includes getting more people using Apple’s services, which have higher margins and generate recurring revenue than devices. As of January, Apple’s installed base of devices was over 2.5 billion. Building on the momentum of the iPod and iTunes music store, Apple launched the iPhone in 2007. The iPhone didn’t have a physical keyboard. At the time, it was a high-status, niche product, entering a market dominated by the cheaper and more ubiquitous BlackBerry. A year later, Apple launched the App Store in parallel with the rollout of the faster iPhone 3G with built-in GPS, opening the floodgates to its ecosystem for new users. Although the initial effort into smartphones posed a risk to Apple’s device profit margins, the bet later paid off as a massive, industry-changing phenomenon. A similar pattern emerged in 2016 with the controversial removal of the iPhone’s headphone jack. As with the keyboard-less iPhone, this announcement initially frustrated some users. But it was a smart bet that wireless headphones would be essential to the future of smartphones. Apple was right about that too. In 2018, Apple saw a huge increase in AirPod sales after a lackluster launch just two years ago. Management’s moves accelerated Apple’s wearables revenue and helped solidify the company’s dominance in the wireless headphone market. AAPL YTD Mountain Apple’s (AAPL) Year-to-date Performance The new MacBook Neo aims to be the latest success in Apple’s strategy. The benefit of Neo isn’t actually a short-term increase in device sales. After all, gross profit margins for Apple products are expected to fall to the low 30s from the high 30s last year, according to Seaport Research. Instead, it’s about attracting more users to its ecosystem over time. That’s why Apple is trying to reach the student audience “very early,” said Samik Chatterjee of JPMorgan. The idea is that once buyers graduate, move into professional careers, and start earning more money, they’ll already become loyal Apple users. They will continue to use Apple’s services and upgrade their devices for years to come. Chatterjee added: “So you’re locking in the consumer very early in the lifecycle, and there’s basically no opportunity for competition.” More long-term users of Apple products means more revenue for the company’s growing services division, including revenue from Apple Music, Apple TV, iCloud, the App Store, and licensing agreements. This segment has become increasingly important to Apple’s revenue because it includes a more stable and recurring revenue stream that relies on Apple’s entire ecosystem, not just device sales. Bank of America said the launch of Neo is a “meaningful tailwind” for Mac revenue. “We see the Neo driving meaningful adoption among first-time Mac owners, who have a different customer base than the Air and Pro models,” the analysts wrote in a note Monday. This is a huge untapped opportunity for Apple, with Neo’s addressable market estimated to be worth $32 billion in 2026, according to BofA. Analysts said Apple’s earnings per share (EPS) could increase by 3 cents if it can capture about 10% of that market and achieve a 19% operating margin this year. True, it is gradual and not a complete success. As manufacturers struggle with rising memory costs, Apple is trying to lock in its pricing by selling the Neo for $599 or more. The explosive growth of artificial intelligence has created an insatiable demand for memory, and hyperscalers are pouring billions of dollars into AI infrastructure. This shift has shifted manufacturing capacity away from consumer electronics, leaving only a limited number of suppliers able to manage a tight market where prices have skyrocketed. In fact, PC prices are expected to rise 17% by the end of 2026 compared to 2025 levels, according to data from research firm Gartner. These increased memory costs are expected to cause global PC shipments to decline by 10.4% over the same period. So far, Apple has been able to deal with this situation by securing lower prices through long-term contracts with suppliers. Additionally, the company’s large scale guarantees priority supply and premium pricing. For suppliers, Apple’s predictable hardware cycles provide a level of financial security that smaller, more volatile technology companies simply can’t match. “The launch of the MacBook Neo shows that they are in a much more comfortable position with memory than the average OME (original equipment manufacturer), so it gives them the flexibility to focus on growth and increasing market share at a time when other companies are more focused on maintaining profit margins,” JPMorgan’s Chatterjee said. Seaport had similar feelings. “We think the company can offset some of this loss through stock price appreciation,” the analysts added. “Unlike most of its competitors, Apple has a solid services and subscription business. Many of the new users it acquires this year are likely to subscribe to Apple’s higher-margin services.” Conclusion The MacBook Neo creates a new opportunity for Apple to attract new users to its stable ecosystem while boosting revenue from its high-margin services business. This is a welcome development, as the services sector is a big reason to love this stock. This is also another example of how Apple is not afraid to take risks in order to provide long-term returns for its shareholders. Look how many times the naysayers have suspected it, and yet the stock is still coming back. We also believe it’s a trade-off between the potential short-term hit to Apple product gross margins and the value of lifelong Apple users. Apple is scheduled to announce its second quarter financial results on April 30th. MacBook Neo sales aren’t that important because the MacBook Neo only became available for purchase about two weeks before the end of the quarter. Still, management’s judgment on early signs of demand can be helpful. We maintain a “proprietary, non-trading” stance. The club has a price target of $300 per share, suggesting an upside of nearly 18.5% from Wednesday’s closing price. Jim Cramer said Thursday that Apple stock will go up. Jim was also pleased that reports of trouble with Apple’s rumored foldable iPhone have been canceled. Bloomberg reported that the device is on track for a September launch alongside the iPhone 18. (Jim Cramer Charitable Trust is long AAPL. See here for a complete list of stocks.) Subscribers to Jim Cramer’s CNBC Investment Club will receive trade alerts before Jim makes a trade. After Jim sends a trade alert, he waits 45 minutes before buying or selling stocks in his charitable trust’s portfolio. If Jim talks about a stock on CNBC TV, he will issue a trade alert and then wait 72 hours before executing the trade. The above investment club information is subject to our Terms of Use and Privacy Policy, along with our disclaimer. No fiduciary duties or obligations exist or arise from your receipt of information provided in connection with the Investment Club. No specific results or benefits are guaranteed.
