5. Apple Inc. (NASDAQ:AAPL)
Number of Hedge Fund Holders: 184
Apple Inc. (NASDAQ:AAPL) is one of the most promising growth stocks, according to hedge funds, as it reduces its reliance on the hardware business. While the company is best known for its iPhone product line, it’s also a key player in cloud computing, offering various services, including game subscriptions and app sales.
The iPhone product line accounted for 52% of Apple’s $296.1 billion revenues for the three quarters that ended in June. Likewise, Apple has moved to reduce its reliance on the iPhone product line by focusing on the service front, which is expected to be a key driver of long-term value.
Consequently, the company has been growing its prospects in advertising, supporting products, cloud service, app store sales, and payments. During the most recent three-month period, services sales increased by 14.1% to $24.2 billion.
Moreover, the service sector boasts of a significantly greater gross margin than hardware, at 74% compared to 35.3% for hardware sales. They also provide a recurring and predictable revenue stream for Apple Inc. (NASDAQ:AAPL), which is exactly what shareholders want.
Even as Apple faces slow hardware sales, it is increasingly investing in artificial intelligence as it seeks to enhance user experience with its devices. New devices are coming with AI-powered software to help summarize text, boost writing skills, and edit photos as Apple seeks to fuel sales.
There is no doubt that Apple trades at a premium as a growth stock with a price-to-earnings multiple of 34.7 compared to an average P/E of 28 for the S&P 500. Apple Inc. (NASDAQ:AAPL)’s premium valuation is expected, given its robust growth on the services front, as it also strengthens its hardware products with AI. Its ability to generate and return value through stock buybacks while offering a 0.44% dividend also underscores why it is a solid long-term growth stock.
Analysts on Wall Street believe Apple is a strong buy with an average price target of $248.90, implying a 9.32% upside potential from current levels. Overall, Apple Inc. (NASDAQ:AAPL) was held by 184 hedge funds in the second quarter of 2024, with total stakes worth $124.18 billion. According to the Insider Monkey database, Berkshire Hathaway is the top shareholder of the company, with a position worth $84.25 billion
Columbia Contrarian Core Fund stated the following regarding Apple Inc. (NASDAQ:AAPL) in its Q2 2024 investor letter:
“Apple Inc. (NASDAQ:AAPL) – Despite the stock falling after announcing earnings in late May, Apple regained ground toward the end of the quarter, fueled by the company’s long-awaited AI announcement at its annual Worldwide Developers Conference (WDC). At the conference, the company showcased some of its new AI features powered by Apple Intelligence that would be coming to Apple products and also announced a partnership with ChatGPT. Investors greatly welcomed the announcement of Apple’s AI strategy and the stock surged, passing Microsoft as the world’s most valuable company (although this hallmark wouldn’t last). Beta testing of these new features will be coming later this summer, but the initial promise and excitement looks to be a potential catalyst for an upgrade cycle, as the company looks to persuade users who have had the same smartphone for years to consider an upgrade.”
