In the world of mega-cap tech stocks, Apple (NASDAQ:AAPL) still remains king for many investors. The company’s Q3 earnings last week certainly provided the kind of validation (or more questions than answers for some) and is a key source of near-term volatility. But over the long-term, it’s been very true that Apple has been a company that’s proven to be hard to bet against.
In this inflationary economy, companies with pricing power should continue to outperform. Impressively, Apple seems to have always found a way to increase prices in good times and bad. The company’s brand is second to none and its loyal customer base continues to come back for more. Indeed, the release of a new AI-enabled iPhone could be the latest catalyst investors consider in this regard (more on that later).
With that said, let’s dive into the bull case behind this truly remarkable Magnificent 7 stock right now.
Q3 Earnings Lead Some Investors to Add
Investor expectations for Apple heading into its Q3 earnings report, which was delivered after market close on Thursday, were high. Investors were expecting the iPhone maker to report Wearables, Home, and Accessories revenue at $7.51 billion, down 9.3% year-over-year. iPhone revenue was estimated to come in at $38.74 billion, a 2.3% decline. Services revenue was forecasted to reach $24.00 billion, up 13.1%. Mac sales were expected at $6.92 billion, a 1.2% increase. Products was anticipated to hit $60.06 billion, a 0.9% decrease.
Importantly, the company did beat expectations for its iPhone, iPad and Services segments on the top-line. Key iPhone segment contributed around 46% of the company’s overall revenue for the quarter. Top-line growth of 5% was stronger than expected and the company’s shares rose on Friday following the report.
Of course, much of this bullish sentiment was overshadowed by Warren Buffett’s Berkshire Hathaway (NYSE:BRK-A, BRK-B) trimming its stake in Apple by over 50%. He did trim other positions, too. It signals he either thinks there’s some pain ahead or he needs a tremendous amount of cash for a big deal. The selloff in the market today indicates incredibly prescient timing on Buffett’s part.
Either way, Apple’s recent price action, at least this week, appears to be tied to these headwinds.
Long-Awaited AI-Focused iPhone
Apple launched the first version of Apple Intelligence that enhances Siri and auto-generates emails, images, and sorting notifications. Released in the iOS 18.1 developer beta for iPhone, iPad and Mac, developers can now test it. Users must join a waitlist in the settings app after updating to access more complex features via Apple servers.
Apple Intelligence will launch to the public later this year. It will likely be separate from new iPhone hardware expected with iOS 18 in the fall. This AI initiative is key for Apple. Investors anticipate it will drive significant upgrades, particularly for iPhone 15 Pro models and newer. Bank of America analyst Wamsi Mohan also predicts a prolonged strong iPhone cycle as AI features improve in the 2025 model.
The Apple Intelligence preview released on Monday includes a new Siri design with a glowing edge, better command recognition and Apple product troubleshooting. It also improves photo search, movie creation and offers AI-generated summaries for Mail, Messages and voicemail. Writing Tools for text generation are also featured.
Apple Still Looks Like a Magnificent 7 Stock to Buy
Apple’s ability to raise prices will continue to come into focus this Fall, following the company’s new iPhone release. We’ll have to see if margins expand as many expect and if bottom-line earnings numbers can accelerate higher. Of course, how institutional investors digest Apple’s outlook will continue to be important to many investors. Particularly after Buffett spooked investors, the stock will have a healthy dose of skepticism priced into it.
But over the long term, I remain bullish on Apple for many of the reasons I highlighted. This is a company that appears to still have pricing power, unlike any device maker in the market. Until those dynamics change, this is a stock I think is worth buying on dips and holding for the long haul.
On the date of publication, Chris MacDonald 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.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.
