Technology stocks are off to a decent start in 2024. Nasdaq-100 As of this writing, the index is up 5% year-to-date.but apple (NASDAQ:AAPL)The company, a leading player in this space, has not been able to maintain the impressive momentum from last year. The company, part of a group of megacap tech stocks known as the Magnificent Seven, has fallen more than 10% so far this year.
By comparison, Apple did well last year, rising about 48%. The company’s reversal of fortunes can be attributed to slowing sales growth and a lack of significant artificial intelligence (AI) development. The members of the Magnificent Seven include: meta platform, Nvidiaand microsoft AI-focused efforts are paying off, outperforming the broader technology sector this year.
The problem is that Apple’s decline could present a buying opportunity for smart investors, as Apple is positioned to take advantage of two major AI-related growth opportunities.
AI could drive solid growth in Apple’s two major businesses
Apple’s revenue for the first quarter of fiscal 2024, which ended December 30, 2023, was $119.6 billion, an increase of 2% from the same period last year. iPhones worth $69.7 billion were sold in the quarter, an increase of 6% from the same period last year. Meanwhile, MacBook sales were almost flat at $7.8 billion.
Analysts don’t expect Apple’s growth to accelerate much through fiscal 2024. According to consensus estimates, the company’s revenue will increase by just 1% to $356.6 billion. Earnings growth is expected to improve slightly by 7% to $6.04 per share. However, with the introduction of AI in the personal computer (PC) and smartphone markets, growth may exceed expectations.
According to a Bloomberg article, Apple is poised to revamp its Mac lineup with a new family of AI-enabled processors. The company’s new MacBooks, which will be powered by the company’s in-house M4 processor, are expected to start hitting the market toward the end of 2024, with more M4-powered computers expected to arrive in 2025.
Bloomberg notes that Apple plans to offer the M4 processor in three variants to suit different budgets. The company also plans to allow customers to pack larger amounts of memory into these new computers, which is surprising considering it’s rumored to have plans to emphasize the AI capabilities of its next M4-enabled MacBook. It’s not something you should do.
Unsurprisingly, Apple declined to comment on the Bloomberg report. However, this market is expected to grow steadily, so it wouldn’t be surprising if the company launched an AI-enabled PC. Market research firm Canalys predicts that in 2024, 48 million AI-enabled PCs will be shipped, accounting for 18% of the total PC market. The company expects AI-enabled PCs to account for 70% of total shipments (205 million units) by 2028, with an annual growth rate of 44%.
According to IDC, Apple will have an 8.4% market share and become the fourth largest PC maker in 2023. MacBook shipments totaled 21.7 million units, down 22% from the previous year. Given that the AI-enabled PC market is currently in its early stages of growth, Apple would want to move quickly into this space to take full advantage of the burgeoning demand. The good news for Apple investors is that analysts expect AI to also help the company significantly increase iPhone sales.
Samik Chatterjee JP Morgan believes AI could lead to a robust iPhone upgrade cycle similar to the one we had when we launched the 5G iPhone nearly four years ago. At the time, the company’s sales and profits were growing at a healthy pace, but the company found it difficult to meet the demand for these smartphones. Analysts at JPMorgan predict that Apple may integrate AI features into the iPhone it releases later this year. That, too, could open up solid long-term growth opportunities. According to Counterpoint Research’s predictions, 1 billion AI smartphones will be shipped between 2024 and 2027.
Daniel Ives of Wedbush Securities estimates that 240 million iPhones were in the upgrade phase at the end of 2023. Apple shipped 226 million iPhones last year, so AI could not only help it acquire new users, but also significantly increase the company’s sales. But it also incentivizes the existing installed base to buy new iPhones.
Stock price valuation means investors are getting a good deal right now
Apple currently trades at a price-to-earnings ratio of 26 times, lower than the 30 times price-to-earnings ratio of the Nasdaq 100, a common benchmark for the tech sector. Buying the stock at this valuation could be a smart move, as the company’s growth could improve thanks to AI and could outperform Wall Street’s expectations. be.
It’s worth noting that the 44 analysts covering the stock have a median 12-month price target of $200 for the stock, implying a 16% upside from current levels. The street price target of $250 points to a potential gain of 45%, and the stock could move closer to that if its AI-focused efforts start to bear fruit. That’s why investors looking for potential AI winners trading at attractive valuations should consider taking advantage of Apple’s exit.
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Randi Zuckerberg is a former head of market development and spokesperson at Facebook, sister of Meta Platforms CEO Mark Zuckerberg, and a member of the Motley Fool’s board of directors. JPMorgan Chase is an advertising partner of The Motley Fool’s Ascent. Harsh Chauhan has no position in any stocks mentioned. The Motley Fool has positions in and recommends Apple, JPMorgan Chase, Meta Platforms, Microsoft, and his Nvidia. The Motley Fool recommends the following options: A long January 2026 $395 call on Microsoft and a short January 2026 $405 call on Microsoft. The Motley Fool has a disclosure policy.
Apple: This battered ‘Magnificent Seven’ stock could start to soar thanks to artificial intelligence (AI) Original article published by The Motley Fool
