We recently published a list of Top 10 AI News and Analyst Ratings You Should Not Miss. Since Apple Inc. (NASDAQ:AAPL) ranks 3rd on the list, it deserves a deeper look.
Investors are on tenterhooks as Jensen Huang’s AI giant is about to release earnings. Gene Munster, Deepwater Asset Management managing partner, said in an interview with CNBC that the broader market can see a pullback if Blackwell-related delays show a wider impact on the AI chips market. The analyst predicted that it’s going to be a “difficult week” for major tech companies.
However, Munster is highly bullish on the broader AI space for the long term.
“I still think that we are in an early innings of a 3 to 5 year tech bull market that is powered by AI, and I think all these big tech companies are going to do well over the next couple of years,” Munster said.
The analyst said that Jensen Huang has indicated in the previous quarters that the demand for AI chips is more than what his company could manage in the short term, and if he reiterates this in the upcoming results, it would give a strong signal to investors about the AI potential.
“There is a lot of awareness about AI but I think the significance of what it’s gonna do is still underappreciated by the market.”
In this article, we compiled the most important latest AI news and analyst ratings around major AI tech stocks. 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).
Pixabay/Public Domain
Apple Inc (NASDAQ:AAPL)
Number of Hedge Fund Investors: 184
Apple Inc (NASDAQ:AAPL) has a new bull: billionaire Dan Loeb. The founder of the New York-based hedge fund Third Point said in a latest letter to investors that Apple has a significant upside potential due to AI.
“We believe Apple Inc (NASDAQ:AAPL) recently announced ‘Apple Intelligence’ suite of AI-enabled smartphone features – the most compelling of which is a next-generation virtual assistant – will start driving meaningful new demand within Apple’s installed base, resulting in accelerating revenue growth on two fronts. First, iPhone revenue is going to see a marked improvement because Apple Intelligence features will not be backwards-compatible with existing iPhone models, creating the conditions for a forced upgrade cycle. Second, Apple’s App Store is likely to become the primary distribution platform for most new consumer focused AI apps such as OpenAI’s ChatGPT (with which Apple Inc (NASDAQ:AAPL) recently announced a partnership). We expect Apple’s claim on the future economics of these apps to be substantial as it exploits its distribution advantage.”
Loeb reiterated the bull case that many other Wall Street analysts have made. This case assumes that millions of people will upgrade their iPhones because they’d want to use AI-powered new models of Apple Inc (NASDAQ:AAPL) flagship device.
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. Amid rising inflation and increasing competition in the smartphone market, Apple might not be able to come up to the high expectations of strong iPhone upgrade numbers.
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.
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, Apple Inc. (NASDAQ:AAPL) ranks 3rd on Insider Monkey’s list titled Top 10 AI News and Analyst Ratings You Should Not Miss. While we acknowledge the potential of 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.
