We recently compiled a list of the 10 Best Technology Stocks to Buy for Long Term. In this article, we are going to take a look at where Apple Inc. (NASDAQ:AAPL) stands against the other technology stocks.
An Analysis of the Technology Industry
The technology industry is one of the key drivers of the global economy. According to MGI research, the global technology industry was valued at $8.51 trillion in 2022 and is forecasted to grow at a compound annual rate of 7.75% to reach $11.47 trillion by 2026. In the United States alone the information technology industry drives more than one-third of the national economy.
One of the latest trends in the tech industry has been the increasing investments in artificial intelligence by both tech giants and start-up companies. According to a July 3 report by Reuters, the US venture capital funding surged to $55.6 billion during the second quarter of 2024. The funding surged more than 47% on a quarterly basis and was mainly driven by significant investments in artificial intelligence companies including $6 billion raised by Elon Musk’s xAI.
However, over the past few months, the technology sector has seen a major sell-off due to what analysts call an “AI bubble”. The sell-off initiated with investors raising concerns over return on investment regarding the premium they have been paying as capital expenditure on artificial intelligence. On August 5, CNBC reported that the “Magnificent Seven” US tech companies lost a combined $1 trillion market value at the start of the trading day. As a result, NASDAQ was down 3%, marking the index’s steepest three-week slide in two years.
We recently covered the AI tech bubble in detail in 10 Tech Stocks to Monitor Amid Market Volatility According to Bernstein Analyst. Here’s a glimpse of the article:
“In the past few weeks, a major selloff in the technology sector, mostly over concerns about return on investments amid ballooning capital expenditures on artificial intelligence (AI), has hit the stock market, sending valuations crashing and igniting fears of an AI bubble at the marketplace that might be about to burst. However, Stacy Rasgon, who has covered semiconductor stocks, one of the most prominent sectors in the AI world, for over fifteen years, has advised investors to stay the course, terming fears of a bubble as overblown. Rasgon claims that even though chances of an air pocket, used to refer to stock plunges, are 100%, he is confident the time for them is not now. He pointed to the very real and massive AI data center build as an example, predicting it would go on for a few years, helping push AI stocks higher.”
Michael Landsberg, Landsberg Bennett Private Wealth CIO appeared on a CNBC interview to talk about the AI bubble. He believes that the AI bubble hasn’t popped yet and what we saw recently was a reset of the market, where the market resets out-of-sync factors, and does not mean that the analysts are not positive about AI. He further added that a lot of AI companies have had a great past six months and are growing their earnings. He believes that ultimately earnings drive any stock and as far as AI stocks are concerned their earnings are growing and will continue to grow, thereby increasing the price.
Moreover, Steve Eisman, Neuberger Berman Senior Portfolio Manager appeared on another CNBC interview termed the recent events as a “Psychological Rotation”. He mentioned that this was not a fundamental rotation, which could have been troublesome, rather it is a psychological rotation that will not hold for long. He further mentioned that Artificial intelligence is here to stay for years and he still sees massive growth opportunities for companies investing in AI.
Our Methodology
To compile the list of 10 best technology stocks to buy for the long term we used the Finviz and Yahoo Finance stock screeners. We searched for technology stocks and sorted them based on their market capitalization. From these stocks, we selected technology stocks that have been in business for 20 years or more and are expected to stay in business for several decades. Once we had the consolidated list, we ranked the stocks that were the most widely held by institutional investors, as of Q2 2024. The list is in ascending order of the number of hedge fund holders for each stock.
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 Inc. (NASDAQ:AAPL)
Number of Hedge Fund Holders: 184
Apple Inc. (NASDAQ:AAPL) the maker of the famous iPhone is one the best technology stocks to buy for the long term. It was held by 184 hedge funds in the second quarter of 2024, with total stakes worth $124.18 billion. Berkshire Hathaway is the top shareholder of the company with a position worth $84.25 billion.
It is one of the largest companies by market capitalization, which is more than $3.41 trillion as of August 23, 2024. The company has been growing its revenue by 8% and its net income by 10% during the past 10 years. The Q3 2024 of Apple Inc. (NASDAQ:AAPL) was also a success story, its revenue grew 5% year-over-year to reach $85.8 billion, whereas, its earnings per share grew 11% during the same time.
The company also achieved record revenues from its Canada, Mexico, France, the UK, Germany, India, Indonesia, the Philippines, and Thailand markets. Moreover, its service revenue also improved 14% year-over-year to reach an all-time high of $24.2 billion.
Analysts are expecting its earnings to grow by 17% during the year to reach $7, while the broader market average sits at 4%. 47 analysts have a consensus Buy rating on the stock, with their median price target of $250 presenting an upside of 11% from current levels.
Analysts are expecting that investments made in AAPL will pay off big time because of artificial intelligence. Yes, the company has been using AI for a long time as we have seen Siri as its virtual assistant, however, the company is about to scale up its AI game.
Apple Inc. (NASDAQ:AAPL) has announced plans to launch its Apple intelligence in the upcoming months. Its initial features include a new interface for Siri, the ability to rewrite content in different tones, summarize emails, and other AI accessibility features. Later, the company plans to integrate ChatGPT to further enhance its Apple intelligence for iPhone users.
Here’s the catch: The launch of Apple intelligence will only work on iPhone 15 Pro and the upcoming models thereby leading to an iPhone upgrade supercycle for the company. For context, during the most recent quarter, iPhone sales accounted for around 46% of the net sales. Thus, as expected the upgrade supercycle has the potential to substantially increase the revenue of the company and subsequently boost returns for its investors.
Baron Opportunity Fund stated the following regarding Apple Inc. (NASDAQ:AAPL) in its Q2 2024 investor letter:
“This quarter we re-initiated a position in Apple Inc. (NASDAQ:AAPL), 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[1]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.”
Overall AAPL ranks 5th on our list of the best technology stocks to buy for long term. While we acknowledge the potential of AAPL as an investment, 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.