The recent revelation that Apple Inc. (NASDAQ:AAPL) might no longer be the dominant mobile device developer might create an opportunity for other tech stocks. Between sucking up investment dollars and squeezing margins, the dominance by Apple Inc. (NASDAQ:AAPL) in the mobile device sector hasn’t always been good for suppliers.
The developer of the iPhone and iPad still has a market cap of $430 billion even after a decline from nearly $700 billion. The investment dollars previously flowing into Apple Inc. (NASDAQ:AAPL) will now look for alternative technology stocks.
More importantly for suppliers is that Apple may no longer be able to squeeze margins. Domestic phone carriers will attest that selling the iPhone was not as profitable as expected. The unfortunate scenario faced by most suppliers is that Samsung might turn out to be an equally problematic customer.
A whole host of current Apple Inc. (NASDAQ:AAPL) suppliers and phone carriers might benefit from a less dominant behemoth, but the stocks of Nuance Communications Inc. (NASDAQ:NUAN) and InvenSense Inc (NYSE:INVN) stand to benefit from investment dollars flowing to different technology stocks. Remember that the price and valuation of a stock is as dependent on investment flows as the prospects of the company itself.
Nuance to attract investors
The company is a leading provider of voice and language solutions for businesses and consumers around the world. Its technologies, applications, and services make the user experience more compelling by transforming the way people interact with devices and systems.
Nuance is famous for being the technology behind Siri on the iPhone platform, but the stock isn’t famous for having a rich valuation. The stock currently trades at only 11 times forward earnings with a 5-year growth rate targeted at 17%.
While Google Inc (NASDAQ:GOOG) is developing voice technology feared as a threat by the market, Nuance has a very successful healthcare division and a strong relationship with Samsung that uses the Android operating system from Google. The fears appear overblown and any investment dollars flowing out of Apple Inc. (NASDAQ:AAPL) and into other technology stocks could easily land at Nuance, with only a $7.5 billion market cap.
InvenSense to attract Apple
This company is more of a speculative play that could benefit as much from signing up Apple Inc. (NASDAQ:AAPL) as a customer as attracting investment flows out of Apple’s stock.
InvenSense is already a key supplier to the Android devices such as the Google Nexus 7, Samsung Galaxy S3, and Amazon Kindle Fire HD. The company provides motion-sensing chips for smartphone and tablet and already counts Samsung and Nintendo as greater than 10% customers.
The fast growing company is only valued at a $1.2 billion market cap and trades at less than 20 times forward earnings estimates. Analysts forecast revenue growing nearly 30% next year, suggesting the stock trades at a cheap valuation considering a deal with Apple could easily juice those results.
While Apple has become a compelling valuation trading at less than 10 times forward earnings with a huge cash hoard, the waning dominance by the previously largest stock in the world provides opportunities for other technology stocks. The fund flows will look for other technology stocks that will include appealing stocks such as Nuance and InvenSense. Not only could these current and potential suppliers of Apple obtain better margins, but also investors might apply higher multiples to these growth stocks previously ignored by the Apple investment machine.
The article 2 Stocks to Buy on the Waning Dominance of Apple originally appeared on Fool.com and is written by Mark Holder.
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