01. Apple Inc. (NASDAQ:AAPL)
Number of Hedge Fund Holders: 184
Leading the list of our ten best consumer electronics stocks to buy is Apple Inc. (NASDAQ:AAPL). Apple Inc. (NASDAQ:AAPL) has once again demonstrated its resilience and market leadership by exceeding earnings expectations in Q3 2024. The company reported earnings per share (EPS) of $1.40, surpassing the anticipated $1.35. Apple’s robust performance was underpinned by its June quarter revenue, which hit a record high of $85.8 billion, a 5% increase from the previous year. This growth reflects the company’s ability to maintain strong market momentum despite global economic challenges.
A key driver of Apple Inc. (NASDAQ:AAPL) success is its diverse revenue streams, particularly in its services division. Services revenue set a new all-time record at $24.2 billion, marking a 14% year-over-year growth. This division, which includes Apple TV+, cloud services, and payment solutions, continues to gain traction, with over 1 billion paid subscriptions globally. The strong performance in services, with a gross margin of 74%, has significantly contributed to the company’s overall profitability.
In terms of products, Apple Inc. (NASDAQ:AAPL) iPhone revenue reached $39.3 billion, showing resilience despite a slight year-over-year decline. The installed base of iPhones hit a new all-time high, and the company is poised to benefit further from the upcoming iPhone 15 lineup and iOS 18. Mac revenue also grew by 2% to $7 billion, driven by strong demand for the M3-powered MacBook Air, particularly in emerging markets. The iPad segment witnessed remarkable growth, with revenue surging 24% year-over-year, reflecting the successful launch of the new iPad Pro and iPad Air models.
Apple Inc. (NASDAQ:AAPL) ability to innovate remains a cornerstone of its success. The integration of artificial intelligence (AI) through Apple Intelligence and the launch of the Vision Pro have sparked excitement among both consumers and enterprises. These developments not only showcase Apple’s technological prowess but also position the company for continued growth in emerging markets and new industries, such as spatial computing. With strong fundamentals, a diversified product and service portfolio, and a commitment to innovation, Apple Inc. (NASDAQ:AAPL) remains a top pick in the consumer electronics sector for long-term investors. The company’s strong financial position, with $153 billion in cash and a disciplined capital return program, further solidifies its bullish outlook.
Baron Technology Fund stated the following regarding Apple Inc. (NASDAQ:AAPL) in its Q2 2024 investor letter:
“The Fund’s chief relative detractor was Apple Inc. (NASDAQ:AAPL), even though it was a meaningful contributor to absolute performance, as we added to our Apple position significantly during the period. We bought Apple well, but in 20/20 hindsight we didn’t buy enough. Because Apple has an oversized weight in the Benchmark (its average weight was 15.7% for the period), when Apple’s stock outperforms (it appreciated 23.0%), it has generally been a headwind to relative performance. Our Apple underweight accounted for 33% of our relative underperformance for the period.
This quarter we increased the size of our position in Apple Inc., a leading technology company known for its innovative consumer electronics products like the iPhone, MacBook, iPad, and Apple Watch. Apple is a leader across its categories and geographies, with a growing installed base that now exceeds 2 billion devices globally. The company’s attached services – including the App Store, iCloud, Apple TV+, Apple Music, and Apple Pay – provide a higher margin, recurring revenue stream that both enhances the value proposition for its hardware products and improves the financial profile. Apple now has well over 1 billion subscribers paying for these services, more than double the number it had just 4 years ago. The increasing services mix has led to healthy operating margin improvement, providing more free cash flow for Apple to reinvest in the business and to distribute to shareholders. Throughout its 48-year history, Apple has successfully navigated and capitalized on major technological shifts, from PCs to mobile to cloud computing. We believe the company’s leading brand and device ecosystem position it to do equally well in the AI age, and this was the driver of our decision to re-invest. “Apple Intelligence” – the AI strategy unveiled at Apple’s recent Worldwide Developer Conference – leverages on-device AI and integrations with tools like ChatGPT to enhance user experiences across its ecosystem. The AI suite enables users to create new images, summarize and generate text, and use Siri to perform actions across their mobile applications, all while maintaining user privacy and security. We think Apple Intelligence can drive accelerated product upgrade cycles and higher demand for Apple services. The combination of growth re-acceleration, increasing services contribution, and thoughtful capital allocation should continue driving long-term shareholder value.”
While we acknowledge the potential of AAPL to grow, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than NVDA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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