We recently published a list of 7 Best AI Value Stocks That are ‘Money Machines’ According to NYU’s Aswath Damodaran. Since Apple Inc (NASDAQ:AAPL) ranks 6th on the list, it deserves a deeper look.
Aswath Damodaran is a Professor of Finance at the Stern School of Business at New York University. His thoughts on economy and stock valuations are given a lot of weight by analysts. Damodaran in his recent interview with CNBC said that Magnificent Seven stocks have become the “value stocks for investors who care about earnings and cash flows.”
“We look at the last year and a half, they’ve added $8.8 trillion in market cap… just these seven companies. Just to give you perspective, the second-largest market in the world, China, has a market cap of $12.1 trillion. These seven stocks alone have added more in market cap than the entire German market, the French market, the Swiss market.”
Damodaran’s comments are important because he’s been repeatedly saying in the past that major technology companies are fully or overvalued. In September, he said on CNBC that if you go through the list of top tech stocks, “you are more likely to be overvalued than undervalued.”
But in his latest interview, Damodaran said that before we “dismiss” Mag. 7 stocks as “risky tech companies,” we should keep in mind that “these are the money machines in this market.”
However, when asked whether he believes we are not in any kind of “danger zone,” the professor said we are in the danger zone not just in terms of these seven stocks, but the market overall.
In this article we take a look at the Mag 7. stocks and their AI-related growth catalysts. 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).
Pixabay/Public Domain
Apple Inc (NASDAQ:AAPL)
Number of Hedge Fund Investors: 150
Aswath Damodaran believes Apple, which is part of the Mag. 7 group of stocks, has become a money machine. In October last year, while talking to CNBC, the professor recommended investors to hold on to Apple shares. He said at the time that the biggest risk for Apple is not being able to catch up on the next upgrade cycle of iPhone. However, he reiterated that Apple has become the company for “all seasons.”
Apple is among the top picks of Wedbush’s Dan Ives for the second half of 2024.
TF International Securities analyst Ming-Chi Kuo also said in a fresh note that Apple has a competitive edge over others with its on-device AI.
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’s AI potential.
Apple Inc (NASDAQ:AAPL) is trading at 26X its 2025 EPS estimate ($7.22). This multiple, though higher than the industry average of 30, does not show the stock’s overvalued, given Apple Inc (NASDAQ:AAPL) sales growth of 6.40% for fiscal 2025 and 10.50% growth for the next five years on a per-annum basis.
Mar Vista Focus strategy stated the following regarding Apple Inc. (NASDAQ:AAPL) in its first quarter 2024 investor letter:
“Apple Inc.’s (NASDAQ:AAPL) stock was pressured in the quarter as investors fretted over softening demand for smartphones, regulatory action from the US Department of Justice, and the Chinese government mandates restricting iPhone use by government officials. Despite these near-term headwinds, we continue to believe the company remains competitively advantaged and benefits from the Apple ecosystem, which has an installed base of over 2 billion devices and over 1 billion paying subscribers. We believe the Apple ecosystem will support a more predictable cash flow stream, which should grow intrinsic value high-single-digits over our investment horizon.”
Overall, Apple Inc (NASDAQ:AAPL) ranks 6th on Insider Monkey’s list titled Jim Cramer’s Latest Portfolio: Top 10 Stocks in July. While we acknowledge the potential of Apple Inc (NASDAQ:AAPL), our conviction lies in the belief that 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 Inc (NASDAQ:AAPL) 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.