We recently published a list of 10 Trending AI Stocks to Watch for the Rest of 2024. Since Apple Inc (NASDAQ:AAPL) ranks 4th on the list, it deserves a deeper look.
Chris Hyzy, Merrill & Bank of America Private Bank chief investment officer, said while talking to CNBC in a latest program that there is “ a lot of momentum” behind the market rally. The analyst said that to gauge how much momentum we have behind the optimism, we need to analyze the “wedge” in the market.
“The biggest wedge that was in the market last year and in 2022 was inflation. That’s beginning to go away. It’s almost to the fact that no one’s is talking about whether or not we are going to have inflation that’s worrisome.”
Hyzy said that the Fed easing its fiscal policy and now China “joining the party” will be two key tailwinds for the market.
Answering a question about the hard landing vs soft landing debate, the analyst said we should look beyond the two possibilities as he believes there are many other scenarios to consider in between these two outcomes.
“We have a lot of components of a soft landing. I’d like to say it’s more of a mid-cycle slowdown with easier financial conditions that should actually create a profit revision to the upside not downside,” Hyzy added.
For this article we picked top 10 trending AI stocks on the back of latest news and analyst ratings. With each company we have mentioned the 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: 184
More and more Wall Street analysts are starting to realize that the much-hyped demand for iPhone 16 might never be realized and Apple Inc (NASDAQ:AAPL) is in a different world now.
Lead times for the iPhone 16 are shorter than in recent years, according to investment firms. Morgan Stanley’s Erik Woodring points out that while supply has improved and there are some signs of strong demand, it’s wise to remain cautious. As of September 24, average lead times in the U.S. for the iPhone 16 stand at 15.2 days, down from 25.7 days for the iPhone 15 last year and 18 days for the iPhone 14 in 2022.
Globally, the trend is similar, with average lead times for the iPhone 16 at 16.3 days, compared to 28.5 days for the iPhone 15. UBS analysts echo these findings, noting that typically, wait times for high-end models like the Pro and Pro Max increase as demand stabilizes. However, this year, wait times for the iPhone 16 haven’t shown the same uptick as in previous launches.
UBS suspects demand might stay below expectations until the rollout of iOS 18.2 in November, which will introduce more AI features. The update, iOS 18.1, is set for mid-October and will showcase some of these features. While it’s early to draw firm conclusions from lead times, Woodring suggests the outlook for iPhone builds leans more negative than positive, despite reports of strong initial demand from some regions like India.
Almost every bullish case on Apple Inc (NASDAQ:AAPL) was built around this assumption: millions of people would rush to upgrade their iPhone because of AI features.
However, Apple Inc (NASDAQ:AAPL) has been seeing a long-term decline in mobile carrier upgrade rates, especially postpaid, for several years. This suggests that people are holding onto their devices longer, likely due to economic factors, satisfaction with current technology, or a lack of exciting new features in recent models. This trend isn’t great for Apple Inc (NASDAQ:AAPL). Can Apple Intelligence break this trend? We’ll find out soon.
However, the assumption that we will see a huge upgrade cycle of iPhone just because of AI is big and comes with a lot of risks. Apple Inc (NASDAQ:AAPL) trades at a forward PE multiple of around 35x, well above its 5-year average of nearly 27x. Its expected EPS forward long-term growth rate of 10.39% does not justify its valuation, especially with the iPhone upgrade cycle assumption. Adjusting for this growth results in a forward PEG ratio of 3.33, significantly higher than its 5-year average of 2.38
Parnassus Growth Equity Fund stated the following regarding Apple Inc. (NASDAQ:AAPL) in its Q2 2024 investor letter:
“Apple Inc. (NASDAQ:AAPL) gained but detracted from relative performance due to our underweight. While the company’s overall and iPhone revenues declined year over year, the unveiling of an upgraded iPad Pro and iPad Air boosted investor sentiment. In particular, the introduction of generative AI features allayed concerns that Apple was not keeping pace with competitors.”
Overall, Apple Inc (NASDAQ:AAPL) ranks 4th on Insider Monkey’s list titled 10 Trending AI Stocks to Watch for the Rest of 2024. While we acknowledge the potential of Apple Inc (NASDAQ:AAPL), our conviction lies in the belief that 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 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.