Apple (NASDAQ:AAPL) stock has sustained a favorable position for over two months, benefitting from a broader market rally. Despite downgrades, some worry AAPL’s trend may be temporary. Robust operations and investor optimism drove a 48.2% increase in AAPL stock in 2023.
The stock’s success was attributed to strong investor interest in dependable, high-quality businesses, particularly those offering growth potential amid a challenging macroeconomic landscape. However, a high multiple and slowing growth have some investors concerned. Let’s dive into why it may not be time to give up on this mega-cap stock just yet.
Strong Financial Standing for AAPL Stock
Despite a nearly 3% revenue dip in the fiscal year ending September, Apple showcased resilience. Amid consumer challenges, cost-cutting measures and increased service revenue, including App Store fees, buoyed its performance.
AAPL stock has promising catalysts. While core product sales, like MacBooks, slowed, Apple adapts by diversifying, introducing new chips, cutting prices, and shifting manufacturing. The early release of the Vision Pro headset and robust services revenue contribute to Apple’s resilience.
In Q3, services revenue exceeded expectations at $22.31 billion, with a 16% year-over-year growth, showcasing Apple’s profitability and $162 billion in cash reserves.
Although there are challenges, Apple’s earnings per share are on the rise, outperforming expectations in three quarters of the past year. The tech giant’s resilience, coupled with share buybacks, positions it as a stalwart cash flow producer in varied market conditions.
AI for Publishing Articles
Apple has engaged in talks with leading news and publishing entities, aiming to secure rights for their content in the development of its generative artificial intelligence systems.
The tech giant proposed multiyear agreements, valued at a minimum of $50 million, to license news article archives. The organizations involved in negotiations include Better Homes and Gardens, IAC, People, Condé Nast, NBC News, and The Daily Beast.
Apple, traditionally quiet about A.I., is secretly advancing in the field, according to CEO Tim Cook. Siri, their virtual assistant, has seen limited development in the past decade.
Recent attempts to engage publishers for A.I. collaborations have garnered mixed responses, reflecting publishers’ wariness towards Silicon Valley giants. Apple declined to comment further.
Big Bets from Big Companies
Warren Buffett, known for avoiding tech businesses, made an exception with Apple. Recognizing its powerful brand akin to Coca-Cola, he values Apple’s ability to command premium prices.
Buffett values Apple’s impressive financials. In 2015, it boasted a 30% operating margin and $70 billion free cash flow. Ongoing robust profitability and strategic stock buybacks contribute to its appeal.
In 2016, when Buffett began investing, Apple’s price-earnings ratio averaged a favorable 10.6-times. It’s difficult to bet against this market leader, despite expectations of its multiple returning to previous levels. Perhaps that’s one of the key reasons Buffett has been holding onto this gem for so long.
Own AAPL Stock for the Long-Run
Apple’s forward price-earnings ratio hovering around 30-times does suggest smaller growth stocks could outperform in a bull market.
However, Apple’s cash flow durability and size ultimately insulates this company from volatility. Thus, for investors looking for as defensive of a tech stock as they come, AAPL stock may remain in high demand in 2024.
On the date of publication, Chris MacDonald has a LONG position in AAPL. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
