We recently published a list of Wall Street Is Focusing on These 10 AI Stocks as New Year Begins. In this article, we are going to take a look at where Apple Inc. (NASDAQ:AAPL) stands against other stocks Wall Street is focusing on as the new year begins.
Dan Niles, Niles Investment Management founder, recently said in a program on CNBC that a slowdown in spending could be a “big problem” for major AI players in 2025. The analyst highlighted that when Satya Nadella was asked whether his company was facing a chip shortage, the head of the Redmond software giant said his company was facing a power shortage, not a chip shortage. Niles said this goes against the claims of Jensen Huang who has been pointing to unprecedented demand for AI chips.
“If you look at the Magnificent 7 (except one) …. they are trading at a low 30 PE. The S&P 500 is trading at a 25 PE, but if you look at the midcap and small-cap stocks, which people have forgotten about because they’re not really AI plays, they’re trading at around 19 to 20 times. They’ve underperformed up until sort of mid-year when the performance picked up. If you look at stocks since June 30th, basically, the S&P is up about 8%, but the NASDAQ 100 is only up 7%. The Russell 2000 is actually up 10% after being only up 1% for the first six months of the year. So you’re already starting to see this broadening out, and I think with the new administration really focused on domestic manufacturing, deregulation, etc., that’s going to benefit the small midcap names more so than names in the S&P 500,” Niles said.
Niles said stocks can face a “rough” time in the first quarter amid the changing posture of the Fed.
“The Fed finally admitted inflation wasn’t transitory. I think that might have been the wakeup call, which is why I think Q1 could be a really rough time for a lot of the, you know, the market as a whole, but a lot of the mega cap stocks as well. As we have to kind of price in the fact that the FED might, you know, they might pause or they might even raise next year, which I think that’s a 50/50 shot of whether they cut, raise, or hold.”
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For this article, we picked 10 AI stocks analysts are talking about heading into 2025. With each company we have mentioned its number of hedge fund investors. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A wide view of an Apple store, showing the range of products the company offers.
Apple Inc. (NASDAQ:AAPL)
Number of Hedge Fund Investors: 158
Ben Bajarin, CEO and Principal Analyst Creative Strategies, Inc, said while talking to Schwab Network that it would take several months before we get clarity on the impact of Apple Inc. (NASDAQ:AAPL)’s new iPhone and its AI features on the company’s sales and overall business cycle.
“There’s a lot of mixed reports out there. I’ve seen anything from surveys saying that, you know, it’s positive to people not using it as much. And this again just comes back to, for a lot of, you know, normal customers, right, people who aren’t trying the bleeding edge of AI services, this is their first experience with any kind of, call it, generative AI, you know, at length.”
Apple Inc. (NASDAQ:AAPL) is desperately in need of new catalysts. The company’s revenue in China fell 8% in fiscal year 2024, following a 2% decline the previous year. The Chinese market accounts for about 15% of Apple’s total revenue, so this downtrend cannot be ignored.
Investors had hopes from the Wearables, Home, and Accessories segment, but so far its performance has been weak. Vision Pro faces tough competition from Meta’s $500 Quest and the more affordable Quest 3S, making it hard to justify its $3,500 price tag. The failure of Apple’s HomePod, unable to compete with Amazon’s and Google’s lower-priced offerings, further highlights the challenges in this market.
Apple’s iPhone 16 has not shown promising growth prospects yet and investors are still in a wait-and-see mode on the AI platform.
While the company is projected to achieve 9.5% EPS growth this fiscal year and 12.3% growth in the next, much of this growth is already priced in, as the stock trades at nearly 30 times the expected EPS for the fiscal year ending September 2026.
Parnassus Growth Equity Fund stated the following regarding Apple Inc. (NASDAQ:AAPL) in its Q3 2024 investor letter:
“Apple Inc. (NASDAQ:AAPL) shares rose during the quarter, making our underweight position a relative detractor. Investors reacted positively to the new iPhone 16 lineup and its advanced features, including generative artificial intelligence, greater durability and increased processing power.”
Overall, AAPL ranks 5th on our list of stocks Wall Street is focusing on as the new year begins. While we acknowledge the potential of AAPL, our conviction lies in the belief that under the radar AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than AAPL but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.