4. Apple Inc. (NASDAQ:AAPL)
Number of Hedge Funds Investors: 158
Counterpoint Research’s latest data shows that global smartwatch shipments fell for the first time ever during 2024, seeing a 7% drop. Apple Inc. (NASDAQ:AAPL), which introduced the Apple Watch in 2015 and helped drive the demand for wearables, saw a 19% year-over-year decline in shipments last year.
“Apple Watch saw a drop in momentum during its 10th anniversary, despite the release of the S10 series,” said Counterpoint senior research analyst Anshika Jain. “The main factor behind the decline was North America, where the absence of the Ultra 3 and minimal updates to the S10 series caused consumers to delay their purchases. Additionally, patent disputes limited shipments in the first half of the year. The slowdown of the existing Apple Watch SE lineup and the lack of new SE models also contributed to the drop.”
Apple investors are waiting for some positive news, but things aren’t looking great for the stock amid falling demand for iPhone. 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.”
