1. Apple Inc (NASDAQ:AAPL)
Number of Hedge Fund Investors: 184
A frustrated Jim Cramer during a program on CNBC tore apart analyst notes discussing Apple Inc (NASDQ:AAPL)’s iPhone 16 performance based on sales trackers, saying we have to end this “game” of trackers.
“Jeffries, Loop Capital, and JPMorgan, they’re all playing this game—how good are Apple Inc (NASDQ:AAPL) sales, using trackers?”
Cramer was referring to different analyst notes trying to gauge how well iPhone 16 is doing based on different indicators and trackers for estimates.
“We have to end the tracker game. Let this be the official…No more tracks,” Cramer added.
Almost every bullish case on Apple Inc (NASDAQ:AAPL) was built around this assumption: millions of people would rush to upgrade their iPhone because of AI features. But the latest numbers for iPhone 16 do not show much enthusiasm for the new device.
Apple Inc (NASDAQ:AAPL) has been seeing a long-term decline in mobile carrier upgrade rates, especially postpaid, for several years. This suggests that people are holding onto their devices longer, likely due to economic factors, satisfaction with current technology, or a lack of exciting new features in recent models. This trend isn’t great for Apple Inc (NASDAQ:AAPL). Can Apple Intelligence break this trend? We’ll find out soon.
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.
Wedgewood Partners stated the following regarding Apple Inc. (NASDAQ:AAPL) in its Q3 2024 investor letter:
“Apple Inc. (NASDAQ:AAPL) also contributed to performance as investors continued to favorably discount the recent unveiling of its AI strategy. As we have noted in the past, the Company has been at the forefront of proprietary semiconductor computer processor development for well over a decade. Given the compute-intensive nature of AI applications, Apple is well situated to develop a suite of compelling, consumer-friendly AI services that are also cost-effective. Apple’s AI value proposition should compel consumers to continue growing their engagement in the Apple ecosystem over the next several years.”
While we acknowledge the potential of Apple Inc. (NASDAQ:AAPL), our conviction lies in the belief that under the radar 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: 8 Best Wide Moat Stocks to Buy Now and 30 Most Important AI Stocks According to BlackRock.
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