We recently published a list of 8 Most Profitable Tech Stocks Right Now. In this article, we are going to take a look at where Apple (NASDAQ:AAPL) stands against other most profitable tech stocks right now.
Technology Sector’s ‘High Bar’
In an interview with CNBC on October 10, Drew Pettit, Director of US Equity Strategy at Citi Research, shared his thoughts about the upcoming earnings season and its potential impact on the market. With the Dow and S&P 500 reaching new closing highs, Pettit raised the question of whether earnings would justify the current valuations. The technology sector has been on a tear, with many software names running up significantly in recent weeks. However, Pettit’s warning suggests that investors should be cautious about getting too caught up in the hype. He noted that when there’s a high bar, investors should be prepared for potential disappointments.
Pettit sounded a note of caution when it came to the tech sector, particularly software stocks. He noted that software has the highest bar within tech, not just in terms of growth expectations but also in terms of monetization. Many software companies are not seeing the expected growth in the next three years, which is already priced into their valuations. This mismatch between expectations and reality could create volatility in the sector.
In terms of specific guidance, Pettit expects companies to use the current uncertainty as an excuse to walk down expectations for Q4. This is a typical trend in US markets, where companies tend to set low expectations and then beat them. Pettit advises investors to focus on companies that can deliver on their promises.
Overall, Pettit’s comments suggest that investors should be cautious about the tech sector, particularly software stocks, and focus on companies that can deliver on their promises. He also emphasizes the importance of looking beyond the current quarter and focusing on long-term growth prospects.
Tech Sector Will Thrive Despite Short-term Challenges
Dan Flax, Senior Research Analyst at Neuberger Berman is bullish on the technology sector, with a focus on companies that are well-positioned to capitalize on the next generation of workloads and are executing well on their product cycles. Flax expects concerns about cyclical headwinds to remain a factor but also sees select opportunities in the sector. He also noted that enterprise customers are looking to adjust to changes in the landscape cyclically and invest in transforming their organizations, which will drive technology spending in the second half of the decade.
As investors navigate the current market landscape, it is essential to approach the tech sector with a sense of caution. While the sector has been experiencing a significant upswing, investors should focus on companies that have a proven track record of delivering on their promises, rather than getting caught up in the hype surrounding certain stocks.
Our Methodology
To compile our list of the 8 most profitable tech stocks right now, we used the Finviz and Yahoo stock screeners to compile an initial list of the 40 largest technology companies by market cap. From that list, we narrowed our choices to companies with positive TTM net income and 5-year net income growth informed by reputable sources, including SeekingAlpha, which provided insights into 5-year growth rates, and Macrotrends, which supplied information on trailing twelve-month (TTM) net income. Then we sorted the stocks in ascending order, according to their hedge fund sentiment, which was taken from our database of 912 elite hedge funds, as of Q2 of 2024.
Why do we care about what hedge funds do? 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 (NASDAQ:AAPL)
Number of Hedge Fund Holders: 184
TTM Net Income: $101.95 Billion
5-Year Net Income CAGR: 12.85%
Apple (NASDAQ:AAPL) is one of the world’s largest technology companies, known for its iconic products such as the iPhone, iPad, Mac, and Apple Watch. Apple (NASDAQ:AAPL) continues to influence consumer electronics and technology industries globally. The company has a loyal customer base and innovative hardware-software integration makes it a leader in consumer technology.
Apple (NASDAQ:AAPL) has achieved remarkable success with its Vision Pro, capturing 57% of the total value in its category globally in Q1, despite only holding a 17% unit selling share.
On June 28, the Apple Vision Pro was launched in major Asian markets including China and Japan, as well as key Western countries such as Germany, France, and the UK in September, which will potentially boost the company’s market share.
Apple (NASDAQ:AAPL) has integrated various LLM models in its products that position it well in the AI competition and is a key driver of its success. By allowing users to select various LLM models, including ChatGPT, to utilize with Siri, Apple (NASDAQ:AAPL) can generate revenue from the LLM that comes preloaded on the devices.
This approach ensures that the company can benefit from the growing demand for AI applications without needing to develop the best model. Analysts expect the company to increase its earnings by 15.16% this year. Apple’s (NASDAQ:AAPL) innovative strategy, dominant position in the cloud and AI markets, and strong growth prospects make it an attractive investment opportunity.
Overall, AAPL ranks 2nd on our list of most profitable tech stocks right now. While we acknowledge the potential of AAPL to grow, 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.