Apple's Resilience: A Hidden Gem in the Tech Market

1 Growth Stock Down 6% to Buy Right Now | The Motley Fool

Apple's stock has dipped alongside a broader market downturn, but remains an attractive buy in the lead-up to its product launches. Earnings season kicked off last month, causing considerable movement in the stock market. Tech stocks didn't fare too well, with the Nasdaq Composite index down more than 9% since mid-July. As an industry leader, Apple's (AAPL 1.25%) stock has similarly tumbled 6% since then. Wall Street appears to have grown skeptical of artificial intelligence (AI) and how far it can realistically push tech companies. Doubt has caused many stocks to fall over the last month, underlining the importance of a long-term mindset when investing in stocks, especially in tech. However, the tech industry has proven time and time again its ability to provide consistent gains over the years, fueled by innovations and investment in new technologies. AI is likely no different. Companies have barely scratched the surface of its capabilities and only recently began adding the generative software to everyday items like smartphones, productivity software, and more. Meanwhile, Apple is well positioned in the industry, with nearly unrivaled brand loyalty from its users and significant cash reserves. Apple's share price has steadily risen 223% over the last five years, while free cash flow climbed 77%. The company is known for its reliability, with the potential of AI likely to keep it expanding for years. So, despite a recent dip, it's one growth stock to buy right now. Apple was largely left out of last year's AI rally, as companies like Microsoft and Amazon got a head start. Apple struggled to find its place in the industry as its peers primarily focused on AI cloud growth. However, that appears to be changing in the second half of 2024. This fall, the iPhone maker will launch Apple Intelligence, a system that will bring a range of AI updates to core products like the iPhone, iPad, and Mac. According to Apple, the platform will harness "the power of Apple Silicon to understand and create language and images, take action across apps, and draw from personal context to simplify and accelerate everyday tasks." As a result, Apple Intelligence will only be available on the company's newest and most powerful devices. iPhone users will need an iPhone 15 Pro or later. Meanwhile, Macs and iPads must be running any of Apple's M line of chips (M1 to M4) to access the AI features. Apple Intelligence sees Apple using AI to reinvigorate product sales. The company posted its earnings results for the fiscal third quarter of 2024 (ended June 29) on Aug. 1, reporting revenue gains of 5% year over year and beating Wall Street forecasts by $1.4 billion. iPhone sales were relatively flat for the quarter, falling 1% year over year. However, a 24% leap in iPad sales illustrated the company's powerful role in consumer tech and growth potential for its iPhones. Q3 saw Apple launch a new iPad for the first time since 2022, triggering a frenzy of upgrades. CEO Tim Cook revealed about half of the iPads sold during the quarter were bought by first-time users, indicating the company hasn't yet saturated the tablet market. The boost in iPad sales could foreshadow what's possible with Apple's coming iPhone 16 release in September and the launch of Apple Intelligence. iPhone sales were stagnant last quarter, but a new release alongside one of its most extensive software updates could convince millions of consumers to try out Apple's latest offerings. Meanwhile, reports of a potential foldable iPad and/or iPhone by 2026 only strengthen Apple's outlook as it continues to innovate. Apple hit $27 billion in free cash flow in its latest quarter, considerably outperforming Microsoft and Amazon. The company regularly beats its peers in free cash flow, proving the reliability of its business. And despite challenges with product sales over the last year, the company still posted revenue growth in its latest quarter and expanded its vast financial reserves. This chart shows that Apple's quarterly free cash flow has expanded at a faster rate over the last year than Microsoft's or Amazon's. What's more impressive is that Apple has done this before seeing a return on its investment in AI. Meanwhile, Microsoft and Amazon have already posted earnings gains from their AI offerings. The figures are promising as Apple begins a quarter when product sales could soar after its September launches. Additionally, the company's growing cash hoard suggests it has the means to continue expanding in AI and catch its rivals. Moreover, the data above shows Apple has the lowest price-to-earnings (P/E) ratio among some of the most prominent names in AI. Its P/E of 33 doesn't signal a major bargain, but it potentially makes it one of the best-valued ways to invest in artificial intelligence.

Think You Know Apple? Here's 1 Little-Known Fact You Can't Overlook. | The Motley Fool

Apple is known for selling what is arguably the greatest hardware device ever invented, but another revenue source is rising in importance. Apple (AAPL 1.25%) just reported financial results for its fiscal 2024 third quarter (ended June 29), and the market didn't seem enthusiastic about it. Shares were up less than 1% the day immediately following the announcement. As of this writing, this "Magnificent Seven" enterprise is the world's most valuable, with a jaw-dropping market cap approaching $3.2 trillion, even after a sizable pullback on Monday. There might be no company that's as closely watched as this one. But if you think you know Apple, think again. Here's one little-known fact you can't overlook. Over the past decade, it's been hard to ignore the rise of Apple's services. In Q3, the segment generated $24.2 billion in revenue, up 14% year over year, which represented 28% of the company's total. Ten years ago, in the fiscal 2014 third quarter, Apple raked in just $4.5 billion from services, so the growth has been notable. During the same stretch, hardware revenue almost doubled. This is something most investors might not be too familiar with. But it's important to know in order to better understand the business and the direction it's heading in. Apple's services, which include advertising, AppleCare, iCloud, App Store, Fitness+, Arcade, Music, News+, TV+, Card, and Pay, is precisely what helps to create the company's powerful ecosystem. This keeps users essentially locked in, making it difficult for them to leave. What's more, this provides Apple with a recurring and very profitable revenue source, as services carry a stellar gross margin of 74%. The services segment probably never had a spotlight shining on it brighter than it is right now. That's because of the company's artificial intelligence (AI) push, known as Apple Intelligence. The primary objective is to make Apple's devices an even more crucial part of users' daily lives. To be clear, though, Apple remains a hardware company at its core. This was true 20 years ago. And it's still true today. In the latest fiscal quarter, 72% of Apple's revenue came from the sale of hardware devices, with the vast majority coming from the iPhone. "Our installed base of active devices reached an all-time high across all products and geographic segments," said CFO Luca Maestri on the Q3 2024 earnings call. Now that investors are more familiar with a rising revenue source for Apple, the next question to consider is whether or not the stock is worthy of being an addition to your portfolio. In order to figure out if it is, we must consider two critical factors: valuation and growth. As of this writing, shares trade at a price-to-earnings (P/E) ratio of around 32. This steep valuation represents a sizable premium of about 50% compared to the trailing-10-year average multiple. This probably is a surprise to no one, considering that the stock has skyrocketed roughly 800% since August 2014, significantly outpacing the broader Nasdaq Composite index. On the one hand, paying a high valuation might make sense. This is a competitively advantaged business with strong profitability and unrivaled customer loyalty. I don't disagree with these factors. But I don't see enough growth potential to justify paying a P/E ratio of between 30 and 35. Apple is only projected to grow its earnings per share at an annualized pace of 10.9% between fiscal 2023 and fiscal 2026, which isn't anything to write home about. The hope from executives and Apple bulls is that the launch of Apple Intelligence will ignite what's known as an upgrade supercycle for the upcoming iPhone 16 model lineup. I'm not so convinced. Even if the newest iPhones deliver better-than-expected revenue, Apple stock still looks extremely expensive. Therefore, it's best to keep shares on the watch list for now.