Source: PaxForex Premium Analytics Portal, Fundamental Insight
Warren Buffett's largest holding by a significant margin is Apple. The tech giant comprises 43% of Berkshire Hathaway's portfolio, translating to nearly $170 billion in Apple stock.
After Berkshire's recent annual meeting, Buffett expressed that Apple "is an even better business" than his long-time favorites, Coca-Cola and American Express. Despite selling off some shares over the past year, Buffett clarified that this decision was driven by tax considerations, not a lack of confidence in the company. Looking to the Oracle of Omaha for investment guidance, Apple remains a compelling choice.
However, not everything has been smooth sailing for Apple. The company faced challenges in the past year with underwhelming iPhone sales in China and the U.S. Additionally, Apple was slow to jump on the artificial intelligence (AI) bandwagon, missing the initial hype.
This led some investors to worry that Apple was losing its edge, lagging behind in both its primary business and potential new ventures. Although the stock has risen over the last year, its growth has been modest compared to its competitors.
Despite these concerns, Apple has recently turned the tide. Here are three reasons why the company continues to be a formidable player:
- Critics underestimated Apple's approach to AI
While the long-term impact of AI remains to be seen, its potential is often likened to that of the internet. When ChatGPT made waves, investors scrutinized leading tech companies for their AI strategies. Many jumped in quickly, launching chatbots or integrating AI into their offerings, frequently touting "AI" to capitalize on the buzz.
Apple's initial absence from this rush alarmed some investors who feared it would fall behind. However, this cautious approach aligns with Apple's reputation for delivering reliable and well-crafted products. The company’s commitment to quality, seen in its sleek designs emulated by many, including Chinese firm Huawei, extends to its AI endeavors. Apple aims to ensure its AI technology is robust and effective.
In contrast, Google parent Alphabet faced multiple setbacks with its AI products, Bard and Gemini, encountering several high-profile issues since their early 2023 debut. Apple, on the other hand, waited until it was confident, unveiling its Apple Intelligence earlier this month. The new features have been well-received, boosting the stock by about 10%. This strategic patience appears to be paying off, affirming Apple's solid position in the AI space.
- iPhone Sales Rebound in China and Apple Intelligence Could Boost Domestic Sales
While iPhone sales in China haven't fully recovered to desired levels, they are showing positive signs. A recent report from China indicated that sales of foreign-made smartphones increased by 52% compared to the same period last year. Although Apple is not the only foreign brand, it is the most prominent. The company has implemented price cuts to better compete with local rivals, and this strategy seems to be paying off.
Domestically, iPhone sales have lagged, but the introduction of Apple Intelligence might be the game-changer needed to rejuvenate sales. This new technology is compatible only with newer iPhone models, prompting customers interested in AI features to upgrade their devices. Although it’s challenging to predict the exact number of upgrades, a substantial portion of customers is likely to make the switch, potentially driving sales for the foreseeable future.
- Record-breaking growth in the Services Segment
Apple’s revenue streams extend beyond just iPhones and MacBooks, including income from services like the App Store, iCloud, and Apple TV. These services have shown impressive growth, with revenue reaching a record high last quarter.
In the second quarter of fiscal 2024, which ended on March 30, services revenue amounted to $23.8 billion out of Apple's total $90.8 billion revenue. This substantial contribution highlights the importance of the services segment. Monitoring the continued growth in this area will be crucial for assessing Apple's overall financial health and future prospects.
As long as the price is above 195.00, follow the recommendations below:
- Time frame: D1
- Recommendation: long position
- Entry point: 207.03
- Take Profit 1: 220.00
- Take Profit 2: 230.00
Alternative scenario:
If the level of 195.00 is broken-down, follow the recommendations below:
- Time frame: D1
- Recommendation: short position
- Entry point: 195.00
- Take Profit 1: 185.00
- Take Profit 2: 175.00
