1. Apple Inc. (NASDAQ:AAPL)
Number of Hedge Fund Investors: 184
Jim Cramer believes that Wall Street is underestimating the significance of the Apple Inc. (NASDAQ:AAPL) iPhone 16 launch. He points out that previous iPhone models have also faced initial criticism, but have ultimately proven successful. Cramer emphasizes that the incremental improvements in the iPhone 16 contribute to increased usage of Apple Inc. (NASDAQ:AAPL)’s services, a growing revenue stream that will eventually surpass the iPhone. While customer reaction to the new phone is uncertain, Cramer believes that the improvements will be highly valued by millions of users, making Apple Inc. (NASDAQ:AAPL) a strong long-term investment.
“Wall Street doesn’t seem too excited about the launch of the Apple Inc. iPhone 16 yesterday, but let me tell you something about this product. Every iPhone has been criticized as a disappointment at launch, except for the first couple of models. Every iPhone supposedly offers only incremental improvements. Don’t bother reading the reviews. That’s what they’ll tell you every single time…
As an Apple aficionado, I want to point out that all of these improvements mean a step up in how many people use Apple’s Services. This is the important revenue stream because one day it will surpass the iPhone as the dominant earnings driver. The service revenue stream is often overlooked, even though it’s becoming a larger and larger part of the puzzle…
We don’t really know how customers will react to the new phone. It’s always been guesswork. But what isn’t guesswork is that these incremental improvements are astonishing features to tens or even hundreds of millions of people. That’s what keeps you owning and not trading the stock of Apple Inc., one of the greatest wealth creators of all time.”
The positive outlook for Apple Inc. (NASDAQ:AAPL) is based on its strong growth potential, despite some short-term challenges. Although iPhone 15 sales in China have been weak, analysts expect a significant upgrade cycle, with anticipation for over 270 million units, especially as the iPhone 16 nears its 2025 release. Apple Inc. (NASDAQ:AAPL)’s services segment, including the App Store, is thriving, with Q1 2024 revenue reaching a record $23.1 billion and showing strong double-digit growth.
Apple Inc. (NASDAQ:AAPL) is also advancing in artificial intelligence, integrating AI into products like the iPhone 16 and the Vision Pro headset, which positions Apple as a leader in AI innovation. Despite some difficulties in hardware sales, Apple Inc. (NASDAQ:AAPL)’s resilient gross margins and strong profitability from its services support its financial stability.
Baron Technology Fund stated the following regarding Apple Inc. (NASDAQ:AAPL) in its Q2 2024 investor letter:
“The Fund’s chief relative detractor was Apple Inc. (NASDAQ:AAPL), even though it was a meaningful contributor to absolute performance, as we added to our Apple position significantly during the period. We bought Apple well, but in 20/20 hindsight we didn’t buy enough. Because Apple has an oversized weight in the Benchmark (its average weight was 15.7% for the period), when Apple’s stock outperforms (it appreciated 23.0%), it has generally been a headwind to relative performance. Our Apple underweight accounted for 33% of our relative underperformance for the period.
This quarter we increased the size of our position in Apple Inc., 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…” (Click here to read more)
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 the ones on our list but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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