Last week, Apple (NASDAQ:AAPL) encountered a notable disturbance following reports of a ban imposed on Chinese government officials using iPhones. China’s Apple iPhone ban has sent shockwaves across the financial realm, leading to a consecutive two-day decline in Apple’s stock value. The consequences of this situation hold significant weight, especially given the country’s pivotal role as one of Apple’s primary markets, contributing substantially to its earnings and serving as the central hub for iPhone manufacturing.
The stock of Apple has undergone a successive decline over two days in reaction to reports concerning the proscription of iPhones for Chinese government personnel. This descent has resulted in a nearly $200 billion drop in the company’s market capitalization, with shares plummeting approximately 6% to $175. This downturn sparks concerns regarding Apple’s financial standing and elicits inquiries into the broader ramifications for Western enterprises conducting business in China. Amidst fears of China’s Apple iPhone ban, investors might look for alternatives to hedge their risks.
China Apple iPhone Ban Winners: Dell Technologies (DELL)
Dell Technologies (NYSE:DELL) has shown remarkable resilience and growth potential despite facing challenges in the PC and laptop market and some weaknesses in the data center server market. In its second-quarter fiscal 2024 earnings report, the company reported a 13% decline in revenue compared to the previous year.
However, what sets Dell apart is its strong performance in the artificial intelligence (AI) server business, driven by generative AI services powered by Nvidia (NASDAQ:NVDA) graphics processing units (GPUs).
Dell’s robust performance in the AI server segment is a significant highlight. Generative AI services accounted for 20% of total server revenue in Q2, translating to approximately $860 million in AI sales. This performance was driven by data center storage devices and servers powered by Nvidia’s high-end GPUs for generative AI.
Despite the revenue decline, Dell managed to limit the fall in earnings per share (EPS) to just 7% year over year in Q2. On an adjusted basis, excluding certain expenses, EPS increased by 4% year over year. This showcases Dell’s ability to maintain profitability even in challenging market conditions.
Dell’s stock is trading at a reasonable valuation, with a 12-month price-to-earnings ratio of 26 and a yearly free cash flow multiple of under 10. This makes Dell an attractive option for value-oriented investors.
Dell offers a dividend yield of nearly 2.2% and actively engages in stock buyback programs, demonstrating its commitment to delivering value to shareholders. Importantly, it’s noteworthy that Dell is not affected by the China Apple iPhone ban.
Microsoft (MSFT)
Microsoft (NASDAQ:MSFT) leads in AI, setting itself apart from rivals like Apple. Microsoft’s AI journey thrives on strategic alliances, forward-looking investments, and a holistic approach.
The company’s dedication to AI innovation is underscored by its $10 billion investment in OpenAI, known for pioneering tech like ChatGPT.
Microsoft 365 Copilot, a versatile AI productivity tool at $30 per user per month, stands as a milestone. It boosts productivity across Microsoft 365 apps, projecting $14 billion in revenue by Macquarie Equity Research with a 40% attach rate.
Microsoft’s cloud infrastructure, Azure, is a juggernaut, contributing over 50% of total revenue. Azure AI is pivotal in AI-first workloads and partnerships with industry leaders like Meta, reflecting surging AI demand.
Microsoft’s Office 365 suite, featuring Office to Outlook, remains resilient amid challenges. Innovations like Microsoft 365 Copilot and potential upselling promise substantial growth.
CEO Satya Nadella expects to double revenue to $500 billion by 2030, emphasizing Microsoft Cloud and Microsoft Plus.
Microsoft focuses on software, cloud services, and enterprise solutions, which are less susceptible to bans on consumer hardware like iPhones. Microsoft’s revenue in China primarily comes from its cloud computing platform, Azure, and software offerings like Windows and Office, which were not directly affected by the China Apple iPhone ban.
Valuing Microsoft at a 35x 2024-25 EV/FCF multiple, factoring in Microsoft 365 Copilot and AI-driven innovations, sets a target price range of $394.74 (Base case) to $451.08 (Bull case), signaling significant upside potential.
Microsoft’s steadfast AI commitment, diverse portfolio, and visionary leadership make it an enticing investment opportunity with promising growth prospects. The China Apple iPhone ban has no impact on Microsoft’s AI endeavors.
Nvidia (NVDA)
In 2023, Nvidia stock has shown consistent growth, with buyer accumulation, despite encountering resistance and experiencing a false breakout and retracement.
Nvidia’s Q2 2023 financials are robust, reporting revenue of $13.5 billion and a net income of $6.19 billion. Notably, the estimated EPS for Q2 2023 was 2.08, outperformed by the reported EPS of 2.70, yielding a positive surprise of 29.69%. Furthermore, the forecasted EPS for the next quarter stands at a positive 3.31.
NVDA stock seems to be poised for significant growth, supported by enthusiastic buyers striving to maintain current levels. Although there are signs of weakening in the share price’s bullish momentum, NVDA stock remains in an uptrend above key moving averages on daily charts.
The stock has rebounded after a pullback and boasts a market capitalization of $1.13 trillion. Analysts have issued a strong buy rating with a yearly target price of $1,100.
The stock price of NVDA has exhibited a bullish trend throughout the whole year, reaching a high of $456 by August 31, 2023, from a low of $109. The current price has the potential to reach further heights, targeting a resistance level of $500, though a break below the $470 support level could lead to a decline below $450. Technical analysis suggests bullish sentiment, with the RSI at around 60.
Nvidia’s business in China was not significantly affected by the China Apple iPhone ban. The ban did not directly impact the company’s ability to supply GPUs or AI technologies to its regional customers.
Meta Platforms (META)
In 2022, Meta Platforms (NASDAQ:META) had a tumultuous year, with its stock price ranging from a peak of about $380 per share to a low of $88. However, it made a remarkable comeback in early 2023, now trading at around $300 per share.
Investors who held onto META through these ups and downs have seen significant returns. Even after the August setback, analysts see potential in Meta’s cost-cutting efforts, leading to improved profit margins. The China Apple iPhone ban affected Apple but not Meta Platforms due to the specific targeting of Apple’s iPhone sales and products in China and the differences in their core businesses.
Meta’s conservative approach to debt sets it apart in the tech industry, with only 21.6% of its capitalization tied to debt. Meta’s robust free cash flow exceeds its total debt, a rarity in the corporate world.
Meta Platforms recognizes the importance of significant investments in specific areas to sustain revenue growth. Q2 2023 saw an 11% year-over-year revenue increase, but attention now shifts to late 2023 and 2024 revenue drivers.
As Meta shifts focus to Threads and monetizes Instagram/WhatsApp, the metaverse project may lose prominence. However, Zacks analysts anticipate double-digit earnings per share growth, approximately 26.7%, over the next year, potentially driving stock prices higher.
Consider the potential for reallocating metaverse spending, potentially restoring Meta’s historical return on invested capital benchmarks. This could lead to more substantial share buybacks and higher analyst targets driven by enhanced monetization efforts and ROIC. Savvy investors should take notice.
On the date of publication, Julia Magas did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
