Apple unveils its most affordable laptop ever. What the MacBook Neo means for investors

CNBC Finance

8 min read

Apple is casting a new line to reel more users into its prized ecosystem, a money-printing machine with fresh hardware as the lure and services as the hook. The tech giant announced its most affordable laptop in history last month with the rollout of the MacBook Neo. With a starting price of $599, the Neo is almost half the cost of some of Apple's higher-end laptops. Apple's new MacBook Air 13-inch M5 model starts at $1,099, whereas the 16-inch MacBook Pro with M5 Max starts at $3,899. All three laptops were unveiled during a three-day hardware blitz from management in March. The Neo is Apple's most obvious attempt to challenge budget laptops like Google's Chromebook models and entry-level Windows machines, which can start around $300 or less. "[Neo] is a much more compelling offering at the price point for what you're getting compared to a similar spec PC," Chandler Willison, analyst at research firm M Science, told CNBC in an interview. "That's really the main advantage there." While a little more expensive, the Neo is an attractive option for cash-constrained consumers who need to do simple tasks such as writing, browsing the web, or using artificial intelligence chatbots. College students, for example, are the perfect market. Apple is even catering to them through a $100 education discount. This strategy is nothing new to Apple. Management has spent decades proving the same point to investors: Enter an existing category, make a better mousetrap, and the sales and stock appreciation will come. The strategy also includes getting more and more people to use Apple services, which have higher margins than devices and create recurring revenue. As of January, Apple had an installed base of more than 2.5 billion devices. Building on the momentum of the iPod and iTunes music store, Apple launched the iPhone in 2007. It had no physical keyboard. At the time, it was a high-status and niche product, entering a market dominated by the less expensive, ubiquitous BlackBerry. A year later, Apple launched its App Store alongside the rollout of the faster iPhone 3G with built-in GPS, opening the floodgates for new users into its ecosystem. While the initial move into smartphones posed a risk to Apple's device margins, the gamble paid off through what would become a massive industry-altering phenomenon. A similar pattern emerged in 2016, with the controversial removal of the iPhone headphone jack. Just like the no-keyboard iPhone, the announcement initially frustrated some users . But it was a wise bet that wireless headphones would be essential to the future of the smartphone. Apple was right about that, too. In 2018, Apple saw a huge increase in AirPod sales after a lackluster launch just two years before. Management's move accelerated revenues within Apple's wearables segment, and helped cement the company's dominance in the wireless headphones market. AAPL YTD mountain Apple (AAPL) year to date performance The new MacBook Neo aims to be the latest success in Apple's playbook. The upside in the Neo isn't really about a near-term boost in device sales. After all, Apple's product gross margin is expected to decline from last year's high 30s to low 30s, according to Seaport Research. Instead,Â it's about attracting more users into its ecosystem for longer periods of time. That's why Apple, according to JPMorgan's Samik Chatterjee, is trying to capture the student demographic "very early on." The idea being that once buyers graduate, move into their professional careers and start earning more, they're already loyal Apple users. They, in turn, will keep using Apple's services and upgrade their devices for years to come. Chatterjee added, "So, you've locked in a consumer much earlier in the life cycle, which basically negates the opportunity of competition to come in." The more long-term users of Apple products means more monetization for the company's ever-growing services division, which includes income from Apple Music, Apple TV, iCloud, App Store, and licensing deals. The segment has become increasingly crucial to Apple's bottom line as it contains stickier, ongoing revenue streams that rely on Apple's ecosystem as a whole rather than just device sales. Bank of America described the Neo launch as "a meaningful tailwind" to Mac revenue. "We see Neo driving meaningful adoption for first-time Mac owners with a distinct customer base relative to the Air and Pro models," the analysts wrote in a Monday note. It's a massive untapped opportunity for Apple, according to BofA, which estimates the total addressable market for the Neo could be $32 billion in 2026. The analysts said that if Apple can grab around 10% of that market, and do so with a 19% operating margin this year, the company could increase its earnings per share (EPS) by 3 cents. To be sure, that's incremental and not a slam dunk. By selling the Neo for $599 and up, Apple is locking itself into a pricing at a time when manufacturers get hit with soaring memory costs. The explosive growth of artificial intelligence has created an insatiable demand for memory, with hyperscalers funneling billions into AI infrastructure. This shift has diverted manufacturing capacity away from consumer electronics, leaving a limited number of suppliers to manage a tightened market where prices have skyrocketed. In fact, data from research firm Gartner forecasts that PC prices will increase by 17% by the end of 2026, compared to 2025 levels. These higher memory costs are also projected to drive worldwide PC shipments down 10.4% over the same period. Thus far, Apple has been able to manage these dynamics because of its long-term contracts with suppliers, which allowed the firm to lock in lower prices. Plus, the company's sheer scale ensures priority supply and premium pricing.Â For suppliers, Apple's predictable hardware cycles offer a level of financial security that smaller, more volatile tech companies simply cannot match. "The launch of MacBook Neo shows you that they're in a much more comfortable position of memory than the average OME [original equipment manufacturer] out there. And hence, it's providing the flexibility to focus on growth at this time or market share gain at this time when others are more concerned about maintaining margins," JPMorgan's Chatterjee said. Seaport shared similar sentiments. "We think the company can make up for some of this lost ground through its share gains." The analysts added, "Unlike most of its competitors, Apple has a solid services and subscription business. Many of the new users it will gain this year are likely to subscribe to Apple's high-margin services." Bottom line The MacBook Neo has created yet another opportunity for Apple to attract new users into its sticky ecosystem while also boosting revenue for its high-margin services business. It's a welcome development as the services unit has been a big reason why we love this stock. It's also another example of how time and time again, Apple's not afraid to take a risk if it means delivering in the long-term for its shareholders. Just look at all the times naysayers have doubted it , and the stock still comes back. We also see it as a tradeoff between a potential near-term hit in Apple's product gross margins and the value of a lifelong Apple user. Apple is slated to report second-quarter earnings on April 30. Sales for the MacBook Neo won't matter much as the product was available for purchase only around two weeks before the quarter ended. Still, any color from management on early demand signs will be helpful. We're sticking by our "own, don't trade" stance. The Club has a $300 per share price target, implying nearly 18.5% upside from Wednesday's close. Jim Cramer said Thursday that he thinks Apple stock will go higher. Jim was also pleased to see reports of trouble with Apple's rumored foldable iPhone were shot down . Bloomberg reported that the device remains on track for a September launch alongside the iPhone 18. (Jim Cramer's Charitable Trust is long AAPL. 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.

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Apple unveils its most affordable laptop ever. What the MacBook Neo means for investors

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