This is what critics of Apple and Tim Cook get dead wrong

By Mark Hulbert

Apple's true innovation is betting on hardware as the clearest path to profit from the AI revolution

Tim Cook has had no shortage of critics, even as Apple's stock soared.

Expect more of the same from John Ternus as he succeeds Tim Cook as Apple's CEO.

Tim Cook must feel as though no good deed goes unpunished.

Even though his tenure at Apple (AAPL) has been hugely successful by almost any measure, the financial media can barely restrain itself in belittling his accomplishments as CEO. It shows once again how misguided most of us are in envisioning the proper role of a company's chief executive.

Take the stupendous performance of Apple's stock during Cook's tenure. It has more than tripled the S&P 500's SPX cumulative total return since Aug. 24, 2011, when he became CEO - 2,323% to 680%, according to LSEG. Yet Investor's Business Daily pronounced this gain to be "anemic," on the grounds that five of the six other stocks in the "Magnificent Seven" produced even better returns over this period.

The commentariat also is advancing the narrative that Apple under Cook's leadership has fumbled badly in its embrace of artificial intelligence. Barron's declared that "AI Remains a Glaring Problem for Apple" and that the company is in desperate need of a "New Era of Innovation."

Gautam Mukunda of Yale's School of Management takes issue with this Apple-has-missed-the-innovation-boat narrative. In an interview, he argued that those advancing this narrative are in essence complaining that Apple isn't doing what the other technological giants are doing - "spending huge sums on AI projects with uncertain profitable commercial applications." And it's the opposite of innovation to do what everyone else is doing.

Apple's innovation bet is on hardware rather than software, Mukunda continued - a wager that the way to profit from the artificial-intelligence revolution is through the hardware that allows customers to use it. That plays to Apple's advantage, since the company's products are far more advanced than those of its competitors. Furthermore, by investing in hardware innovation and then licensing the use of other companies' AI software, Apple doesn't have to "invest in the fastest depreciating capital asset in human history" - data centers, AI infrastructure, large language models and so forth.

Culture is key

By choosing company veteran John Ternus to succeed Tim Cook, Apple's board is expressing confidence in the company's continued emphasis on hardware innovation. Currently Ternus is Apple's senior vice president of hardware engineering.

There's another way in which Apple's board is expressing confidence in the path it is pursuing, notwithstanding its many current skeptics: Ternus is an insider, having worked at the company since 2001. He, therefore, is a product of Apple's internal culture, and as CEO he is likely to maintain and promote that culture.

That's key, Mukunda argued, because maintaining a profitable company's internal culture is crucial to its continued success. In his book "Indispensable: When Leaders Really Matter," Mukunda showed that "most of the CEOs who try to radically transform a company will fail."

Mukunda said that "Apple's commitment to flawlessly engineered and integrated products is a product of its internal culture, because doing that sort of work is a team sport" Ternus is a member of that team.

The bottom line? Expect more of the same from Ternus as he succeeds Cook as Apple's CEO. And that's not a bad thing, notwithstanding the many skeptics who are questioning Cook's achievements and the path he put Apple on.

Mark Hulbert is a regular contributor to MarketWatch. His Hulbert Ratings tracks investment newsletters that pay a flat fee to be audited. He can be reached at mark@hulbertratings.com.

More: This is what Apple investors need to know about what's next for the company and its new CEO

Also read: Tim Cook's secret weapon that turned Apple into a $4 trillion empire

-Mark Hulbert

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