2. Apple Inc. (NASDAQ:AAPL)
Number of Hedge Funds Investors: 158
Jim Cramer in a latest program on CNBC discussed Citi’s recent downgrade of Apple Inc. (NASDAQ:AAPL) following the iPhone maker’s announcement that it’s delaying Siri upgrade.
“I think we now have to think about Apple. The reason why is because Citi has a mid-quarter update today, lowering estimates on a delayed Siri upgrade. What happens with something like this is people just say, “All right, they’re going to push out something that we didn’t think was going to be ready anyway and push it out till next year.” It becomes a great excuse to sell, especially because the stock is up 38% over one year and is only down 2% now. Do I think this is the right time to sell? I don’t know. People look at these things, they have baskets, and this stock has been the rock. There’s nothing near term that is so great.”
Apple’s latest quarterly results were helped by Services revenue in the latest quarter, but the key challenges haunting the company remain as they were. Many analysts believe just a few AI apps would not be enough to trigger a broader upgrade cycle for iPhone. Apple is dealing with currency headwinds as the stronger US dollar is expected to reduce top-line growth by 2.5% next quarter. For Q2 FY2025, management expects overall revenue to grow in the low to mid-single digits. Apple’s stock is trading at a premium valuation, with a price-to-earnings ratio of 39-40x, a price-to-free-cash-flow ratio of 33-34x, and a PEG ratio exceeding 3x. Upcoming quarters would be difficult for Apple and its current valuation is not justified.
Tsai Capital stated the following regarding Apple Inc. (NASDAQ:AAPL) in its Q4 2024 investor letter:
“We initiated our investment in Apple Inc. (NASDAQ:AAPL) in 2016 and elevated it to a core holding in 2018, the same year the company introduced its redesigned 13-inch and 15-inch MacBook Pro models. Under Tim Cook’s visionary leadership, Apple has consistently redefined innovation in hardware and software.
The September 2024 launch of the iPhone 16, with its groundbreaking AI capabilities, including enhanced image generation tools, marks another inflection point. We believe this transformative device is the foundation for an AI-driven supercycle and could entice approximately 100 million consumers to upgrade, reinforcing Apple’s leadership in the industry.
Today, Apple’s ecosystem spans over two billion active devices, supported by a rapidly-growing base of subscription services. This strategy has helped to turbocharge customer engagement and spending. In the most recent fiscal year, which ended in September 2024, Apple’s high-margin services division accounted for 39.3% of total gross profits, up from 32.8% just two years ago.
Apple’s financial footing remains exceptional, with approximately $50 billion in net cash and marketable securities. Looking ahead, we expect earnings-per-share growth to outpace revenue growth, driven by margin expansion and continued share buybacks.”
