We recently compiled a list of the 8 Best FAANG Stocks to Buy According to Analysts. In this article, we are going to take a look at where Apple Inc. (NASDAQ:AAPL) stands against the other FAANG stocks to buy according to analysts.
“We Are Just at the Beginning of the AI Buildout”
Each of the big tech stocks has revealed its plans to invest $50 to $100 billion in GPU compute, evidence that Artificial intelligence may be the biggest theme right now. On October 21, Ray Wang, Constellation Research’s principal analyst, founder, and chairman, joined CNBC’s ‘Squawk Box’ to share his stance on the tech sector, especially the Magnificent Seven, and the role of artificial intelligence.
The third quarter earnings season is upon us some of the mag seven are yet to report their quarterly results. Wang suggests artificial intelligence is just beginning to pan out and will stand as the major theme for a long while. He adds that companies, among the mega-caps, have poured hundreds of billions into AI during the first half of the year, and plan to add more during the second. He also shared that these mega-cap companies are driving demand as well.
READ ALSO: Jim Cramer’s Game Plan: 23 Stocks to Watch and 10 AI Stocks to Watch for the Rest of 2024.
While these expenditures may seem to have little to no payoff, historically investors were also worried about companies investing in the Internet. However, Wang dissects that the internet is not the same as artificial intelligence. The internet was rather open and decentralized and had many winners. AI, on the other hand, is more centralized, closed, and expensive, meaning that only a few players are going to make a mark.
Wang also shares that he owns all of the magnificent seven stocks. An interesting conjunction, highlighted by Wang, is that across search, social media, and commerce, most of the stocks in the Mag 7 have digital ads. Across all these three avenues, the next players cannot compete with the Magnificent Seven, especially in terms of revenue. On the regulatory front, he emphasized that the sector needs some relief. He adds that the tech sector needs to play out mergers and currently IPOs are lined up, explaining why everything is on hold.
FAANG is an acronym, which originally began as FANG, consisting of five major technology companies. The original term, FANG was coined by Jim Cramer in 2013 because, according to him, the four tech stocks belonged together as they functioned across similar themes of digitization and the web. FAANG today is much broader and includes technology companies that are shaping the future, which may also be categorized as the magnificent seven. That said, let’s take a look at the 8 best FAANG stocks to buy according to analysts.
Our Methodology
To come up with the 8 best FAANG stocks to buy according to analysts, we went over the NYSE FANG+ index and picked the latest holdings. We then examined the stocks and picked the ones with the highest analyst upside potential as of October 22, 2024. We also added the hedge fund sentiment of each stock as of Q2 2024. The list is in ascending order of analyst upside primarily and hedge fund holders, as of Q2 2024, secondarily.
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)
Analyst Upside as of October 22, 2024: 6.3%
Number of Hedge Fund Holders: 184
Apple Inc. (NASDAQ:AAPL) is one of the best FAANG stocks to buy according to analysts. The company behind the iPhone also sells a range of digital and entertainment products including iCloud, Apple Pay, Apple Music, and Apple TV+.
In the fiscal third quarter of 2024, the company launched Apple Intelligence, a personal intelligence system by Apple backed by AI. The new system is integrated into all new products by Apple. On October 21, Samik Chatterjee, an analyst at JPMorgan, joined CNBC’s “Squawk on the Street” where he discussed the demand for iPhone 16 and the influence Apple Intelligence will have on it. He argued that Apple Intelligence will likely drive the demand for iPhone 16. Momentum did not build up early this year due to a delay in Apple Intelligence, but now we are looking at a recovery.
Chatterjee adds that AAPL and its consumers are waiting for the new Apple Intelligence features to launch, which will lead to a surge in demand for the iPhone 16 and an even greater surge will be seen for the iPhone 17 launching next year. With or without AI, its proprietary products, especially the iPhone, reported robust earnings. In the fiscal third quarter of 2024, the iPhone generated revenue worth $39.3 billion during FQ3 2024, making up for nearly 45% of the total revenue.
Overall, Apple Inc. (NASDAQ:AAPL) has grown its revenue and net income by 8% and 10% respectively, over the past 10 years. AAPL holds a legacy with a loyal customer base. The company has had a decent growth trajectory over the years and the integration of AI will only accelerate it further.
Columbia Contrarian Core Fund stated the following regarding Apple Inc. (NASDAQ:AAPL) in its Q2 2024 investor letter:
“Apple Inc. (NASDAQ:AAPL) – Despite the stock falling after announcing earnings in late May, Apple regained ground toward the end of the quarter, fueled by the company’s long-awaited AI announcement at its annual Worldwide Developers Conference (WDC). At the conference, the company showcased some of its new AI features powered by Apple Intelligence that would be coming to Apple products and also announced a partnership with ChatGPT. Investors greatly welcomed the announcement of Apple’s AI strategy and the stock surged, passing Microsoft as the world’s most valuable company (although this hallmark wouldn’t last). Beta testing of these new features will be coming later this summer, but the initial promise and excitement looks to be a potential catalyst for an upgrade cycle, as the company looks to persuade users who have had the same smartphone for years to consider an upgrade.”
Overall AAPL ranks 5th among the 8 best FAANG stocks to buy according to analysts. 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 time frame. 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.