We recently compiled a list of the 13 Best American Tech Stocks To Buy According to Short Sellers. In this article, we are going to take a look at where Apple Inc. (NASDAQ:AAPL) stands against the other American tech stocks.
Tech stocks have outperformed the stock market for several years and account for over 30% of the market’s overall holdings. With market values estimated at trillions of dollars, the majority of the lauded Magnificent Seven stocks are American tech companies that are still expanding. Technology is constantly evolving, and investors have a lot of opportunities because of this ongoing advancement.
This dynamic progress was reflected in the US stock market when it rose more than 3% in the second quarter of 2024. In terms of the trade in artificial intelligence, technology companies remained at the top, and this trend did not appear to be slowing down throughout the quarter. The largest companies have outperformed the market this year, which has been a remarkable trend. The 500 largest companies’ large-cap market saw gains of 4.4% in Q2 YoY, increasing its 2024 return to above 15%. In contrast, the small-cap market saw a 3.3% drop, translating into a 1.6% 2024 return.
Even though technology companies outperformed in Q2 FY2024, Main Street Research’s James Demmert cautions investors not to treat all of them the same. Instead, they should prioritize those tech firms that can deliver consistent earnings, especially in an uncertain economy.
Investors should also stay informed about the 2024 tech industry statistics. According to the Information Technology and Innovation Foundation, almost one-third of the growth in the US economy is attributed to the IT sector, which is the main driver of the country’s economy. Similarly, the United States accounts for one-third of the world’s information technology market, according to the International Trade Administration, making it the largest tech market in the world. Computer and IT jobs reported a median annual wage of $104,420 in May 2023, while 108,503 college graduates with bachelor’s degrees in computer and information sciences graduated in 2022, a 3.5% increase YoY. The average yearly salary for tech majors is $90,000.
According to a report, tech trends in 2023 were dominated by electrification/renewables and generative AI. Internet searches for generative AI increased by 700%, and the area received significant funding as huge language models processed more data and expanded modalities. Even while global IT investment declined, electrification and renewables continued to draw large amounts of capital. These industries continue to have a high volume of job postings, signifying potential for long-term growth.
Looking forward, according to the Deloitte 2024 technology industry outlook, in the wake of current macroeconomic headwinds such as high inflation and supply chain disruptions, the technology industry confronts a cautious 2024 recovery. As per Deloitte’s Q4 2023 study, 62% of tech executives believe the industry is “healthy,” with growth anticipated in the areas of cybersecurity, cloud computing, and artificial intelligence. By late 2024, generative AI is expected to have a major impact on enterprise software and elevate operational efficiency. Tech companies and startups are investing more in AI, but enterprise adoption is still sluggish. However, this is predicted to change in the second half of 2024. Market expansion is anticipated to be propelled by enterprise expenditure on AI and IT services. Nonetheless, regulations in the EU and the US focusing on data privacy, sustainability, and AI ethics continue to provide challenges, forcing companies to follow regulations while leveraging these for competitive advantage. To reduce geopolitical risks and guarantee uninterrupted growth, supply networks will need to strategically change, and effective operations will need to be prioritized.
Methodology:
We sifted through holdings of tech ETFs and online rankings to form an initial list of 25 American tech stocks. Then we selected the 13 stocks that had the lowest percentage of their shares shorted. The stocks are ranked in ascending order of the lowest percentage of their shares shorted.
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)
A wide view of an Apple store, showing the range of products the company offers.
Apple Inc. (NASDAQ:AAPL)
% of shares shorted: 0.80%
Apple Inc. (NASDAQ:AAPL) has solidified its long-term leadership in the consumer electronics market by focusing on a high-end, closely connected ecosystem of products, services, and software. Apple’s flagship iPhone is the central component of this ecosystem, accounting for 46% of the company’s net sales. Hence, providing it with pricing power, switching costs, and network impact. All other Apple products and services get the most value from keeping users within this walled garden. With this strategy, the company has growth potential and makes it unique.
The California-based tech giant introduced Apple Intelligence, an AI-powered personal system for its new smartphones, in fiscal Q3 2024, perhaps sparking an iPhone upgrade super cycle. Sales of iPhones reached $39.3 billion YoY, and Mac revenue increased 2% to $7 billion YoY, contributing to the company’s $85.8 billion in revenue, a 5% YoY gain. AAPL’s economic moat is bolstered by its solid financial history, which includes growth in net income and revenue over the last ten years.
Morningstar analysts upgraded their estimation of the company’s fair value from $170 to $185 due to an improvement in their projection for iPhone revenue. Analysts predict strong iPhone-driven growth in 2025 and 2026, pushed by improvements to Apple’s artificial intelligence technologies. However, they still believe the firm’s stock is expensive, with the present price reflecting an unsustainable 20% iPhone revenue increase in fiscal 2025 amid headwinds in China and slowing upgrade cycles.
Baron Funds said the following about Apple Inc. (NASDAQ:AAPL) in its second-quarter 2024 investor letter:
“This quarter we re-initiated a position in Apple Inc. (NASDAQ:AAPL), a leading technology company known for its innovative consumer electronics products like the iPhone, MacBook, iPad, and Apple Watch. Apple is a leader across its categories and geographies, with a growing installed base that now exceeds 2 billion devices globally. The company’s attached services – including the App Store, iCloud, Apple TV+, Apple Music, and Apple Pay – provide a higher margin, recurring revenue stream that both enhances the value proposition for its hardware products and improves the financial profile. Apple now has well over 1 billion subscribers paying for these services, more than double the number it had just 4 years ago. The increasing services mix has led to healthy operating margin improvement, providing more free cash flow for Apple to reinvest in the business and to distribute to shareholders. Throughout its 48-year history, Apple has successfully navigated and capitalized on major technological shifts, from PCs to mobile to cloud computing. We believe the company’s leading brand and device ecosystem position it to do equally well in the AI age, and this was the driver of our decision to re-invest. “Apple Intelligence” – the AI strategy unveiled at Apple’s recent Worldwide Developer Conference – leverages on[1]device AI and integrations with tools like ChatGPT to enhance user experiences across its ecosystem. The AI suite enables users to create new images, summarize and generate text, and use Siri to perform actions across their mobile applications, all while maintaining user privacy and security. We think Apple Intelligence can drive accelerated product upgrade cycles and higher demand for Apple services. The combination of growth re-acceleration, increasing services contribution, and thoughtful capital allocation should continue driving long-term shareholder value.”
Overall AAPL ranks 4th on our list of the best American tech stocks to buy according to short sellers. While we acknowledge the potential of AAPL as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than AAPL but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: $30 Trillion Opportunity: 15 Best Humanoid Robot Stocks to Buy According to Morgan Stanley and Jim Cramer Says NVIDIA ‘Has Become A Wasteland’.
Disclosure: None. This article is originally published at Insider Monkey.