We recently published a list of top 10 AI stocks Wall Street analysts are upgrading. Apple ranks 5th in the list. That’s why the stock deserves a deeper look.
There has been much uproar about AI stock valuations and how investors are overpaying for mega-cap tech stocks that are promising something that still lies far into the future — productivity gains, real-life AI products and AGI. But the market doesn’t seem to care what the AI skeptics and naysayers believe. There seems to be no end in sight to the AI-led gains in stocks. And analysts are expecting more. Goldman Sachs’s Scott Rubner recently said that he sees a “wall of money” heading towards the market. Rubner pointed towards the whopping $7.3 trillion sitting in money market funds and said he believes the floodgates are about to open and investors would funnel that money into stocks. According to Rubner’s model, the third quarter of 2024 is when we should expect billions ($29 billion, to be precise) to be flushed into the market.
One doesn’t need to have a crystal ball to know where all of those billions would be headed. AI is the promising theme everyone is betting on and that everyone includes experts, billionaires, money managers and long-term value investors. Tom Lee, Fundstrat Global Advisors co-founder, recently said in a program on CNBC that investors have been “hesitant” for much of the year, but they should just “stick” with “what’s working.” AI, weight loss drugs and related themes is what’s working these days, according to Lee.
Methodology
For this article we picked the top AI stocks Wall Street analysts recently upgraded or gave bullish comments about. With each stock we have mentioned the number of hedge fund investors. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
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Apple Inc (NASDAQ:AAPL)
Number of Hedge Fund Investors: 150
Notable Wall Street analyst and Deepwater Asset Management Managing Partner Gene Munster recently made waves when he said in a post on Twitter that Apple Inc (NASDAQ:AAPL) is a better investment than Nvidia for the long term. Munster believes “owning Apple Inc (NASDAQ:AAPL) over the next year will have a higher return” because the market is in denial about Apple Inc.’s (NASDAQ:AAPL) AI potential.
The Wall Street is running out of patience with Apple Inc (NASDAQ:AAPL) amid Apple Inc’s (NASDAQ:AAPL) AI strategy that’s been so far nonexistent and lagging behind competitors. But Apple Inc (NASDAQ:AAPL) bulls believe Apple Inc (NASDAQ:AAPL) will shine through in the AI race. The market is now awaiting the WWDC event where Apple Inc (NASDAQ:AAPL) is expected to reveal its AI plans. Dan Ives of Wedbush, one of the biggest Apple Inc (NASDAQ:AAPL) bulls, recently said that WWDC is the “most important event for Apple in over a decade as the pressure to bring a generative AI stack of technology for developers and consumers is front and center.”
Ives thinks Apple Inc (NASDAQ:AAPL) will be able to create an ecosystem around its AI offerings and Apple Inc (NASDAQ:AAPL) would see a $30 to $40 per share surge because of its AI products. Ives has a $275 price target on Apple Inc (NASDAQ:AAPL) shares.
Apple Inc (NASDAQ:AAPL) is trading at 27x its 2025 EPS estimate, which is still a high multiple given Apple Inc’s (NASDAQ:AAPL) 9.60% growth estimate for 2025 and 10.50% per-annum growth expected over the next five years. But all of this could change if Apple Inc (NASDAQ:AAPL) is able to pull AI-related catalysts out of its bag. The WWDC event and the new few weeks and months would be critical for Apple Inc’s (NASDAQ:AAPL) growth trajectory.
The first signs of Apple Inc’s (NASDAQ:AAPL) AI capabilities are here. Last month, Apple Inc (NASDAQ:AAPL) revealed new M4-powered iPad Pro and claimed that its devices, powered by Neural Engine, will be “more powerful than any neural processing unit in any AI PC today.” Apple Inc’s (NASDAQ:AAPL) Neural Engine is Apple Inc’s (NASDAQ:AAPL) neural processing unit (NPU) that accelerates AI workloads.
RiverPark Large Growth Fund stated the following regarding Apple Inc. (NASDAQ:AAPL) in its first quarter 2024 investor letter:
“Apple Inc. (NASDAQ:AAPL): Apple shares were a top detractor in the quarter. The company’s stock was pressured by negative news items including a government antitrust case, an Apple Watch patent dispute, and slowing China iPhone sales. Ultimately the company’s fiscal 1Q24 earnings report delivered a slightly better than expected quarter, but with guidance that disappointed investors. 1Q24 revenue and gross margin were better than feared, buoyed by stronger than expected worldwide iPhone sales which grew 6% despite a slight decline in China iPhone sales. Services revenue in the quarter was as expected and signaled the third quarter in a row of accelerating growth. Gross margins were also stronger than expected at 45.9%, the highest level in more than a decade. Guidance of $90 billion of revenue for 2Q24 was light however, due to weaker than expected iPhone sales in the current period and year-over-year declines in other hardware products facing difficult year-over year comps.
Although near-term trends are a bit muted, Apple is carrying lean inventory into an iPhone refresh cycle later this year. With an installed base of 2.2 billion active devices and significant growth of the company’s recurring revenue Services segment, we believe that Apple remains one of the most innovative, best positioned and most profitable companies in the mobile technology industry.”
Overall, Apple Inc (NASDAQ:AAPL) ranks 5th in Insider Monkey’s list of Analysts are Upgrading These 10 AI Stocks. You can visit Analysts are Upgrading These 10 AI Stocks to see the other AI stocks that are on analysts’ radar. While we acknowledge the potential of Apple, our conviction lies in the belief that smaller AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than Apple but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
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