We recently published a list of Top 10 Trending AI Stocks Amid Latest News and Analyst Ratings. Since Apple Inc. (NASDAQ:AAPL) ranks 3rd on the list, it deserves a deeper look.
The reality is finally catching up to the AI hype as investors await to see ROI on huge spending on AI chips and infrastructure. Dan Niles, Niles Investment Management founder and portfolio manager, during an interview with CNBC last month, called the decline in Mag. 7 stocks after Q2 earnings representative of a “fundamental shift” in the industry.
“I know it’s popular to talk about AI because these stocks are driving the market, but at a certain point, you want to get a return on all of this money you are investing. And if your forward revenue estimate is going lower not higher but your CapEx is going up, at some point those two things are going to collide.”
Niles said that major tech companies went through a “digestion” period after seeing huge returns during the COVID-19 pandemic days, and he expects the same to happen as we move into the next year.
The analyst said that on an equal-weighted basis, the broader market is up when compared with Mag. 7 stocks. He recommended investors to buy the stocks that would benefit from rate cuts. These include consumer staples, utilities, telecom services, etc.
Niles said the other 493 companies could drive the market to new “all-time record highs.”
For this article, we picked 10 AI trending stocks that are moving after latest analyst ratings and earnings. 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
Dan Niles, Niles Investment Management founder and portfolio manager, said during a recent program on CNBC that despite his view that the market should look beyond Mag. 7 stocks for more value, he likes Apple “a lot.”
“Apple had very little for the last three years. It grew 2% two years ago, 0% last year, 4% this year, I think next year driven by people upgrading their iPhones which they last did during COVID you are gonna see that growth rate be over 10%.”
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.
Mar Vista Focus strategy stated the following regarding Apple Inc. (NASDAQ:AAPL) in its Q2 2024 investor letter:
“Investors were reminded of the strength of the Apple Inc. (NASDAQ:AAPL) ecosystem as management demonstrated how generative AI solutions would be integrated into Apple’s 1.2 billion iPhone installed base. Apple plans to integrate generative AI features into its iOS 18, which will be broadly released in the fall with the iPhone 16. We believe Apple should benefit from generative AI as it will spur a meaningful iPhone upgrade cycle and create new avenues of monetization through its app store and advertising offerings. We believe this will support intrinsic value growth that will range between high-single-digits and low-double-digits over our investment horizon.”
Overall, Apple Inc. (NASDAQ:AAPL) ranks 3rd on Insider Monkey’s list titled Top 10 Trending AI Stocks Amid Latest News and Analyst Ratings. 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.
READ NEXT: Analyst Sees a New $25 Billion “Opportunity” for NVIDIA and Jim Cramer is Recommending These Stocks.
Disclosure: None. This article is originally published at Insider Monkey.
