Source: PaxForex Premium Analytics Portal, Fundamental Insight
Apple has been a strong performer for investors this year, with its stock surging by 50% since January 1st. Wall Street has been particularly bullish on the company as it approached a market cap of $3 trillion, a milestone it achieved in June, making it the first company to reach such a valuation.
The company's track record of consistent growth has earned it a reputation as a reliable investment option, leading Warren Buffett's Berkshire Hathaway to allocate 46% of its portfolio to Apple.
However, it's important to weigh the positives and negatives of Apple's business before making investment decisions. Here is one positive (green flag) and one negative (red flag) for Apple in 2023.
On the positive side, Apple seems to be gearing up to make a promising entry into the artificial intelligence (AI) market. While companies like Microsoft and Nvidia have enjoyed significant rallies thanks to their AI potential, Apple has remained relatively low-key in the hype. However, a recent report from Bloomberg indicates that the company is secretly developing AI tools that could rival those offered by OpenAI. Apple has built its own framework to create language models and has even developed an AI chatbot nicknamed "Apple GPT." This news had a positive impact on the company's stock, boosting it by around 2% on the day of the report (July 19).
As the AI market continues to be a focal point since the launch of OpenAI's ChatGPT last November, Apple's potential entry into this domain is seen as a green flag for its future growth prospects.
Although Apple hasn't made as much noise in the AI market as some other companies, it has been gradually implementing AI upgrades across its product lineup.
For example, in June, Apple introduced an update to the iPhone's autocorrect feature that utilizes language models similar to ChatGPT. This allows the autocorrect to learn from users' texting habits, improving its accuracy over time. Additionally, the AirPod Pros now come with an AI-enabled feature that automatically turns off noise cancellation when the user engages in conversation. These incremental advancements showcase Apple's interest in incorporating AI technology into its products.
Given Apple's massive dominance in the consumer tech industry, it has the potential to play a crucial role in the widespread adoption of AI and bring this technology into the hands of millions of consumers.
However, while Apple's stock has seen a significant bull run, resulting in lucrative gains for existing investors, it has also driven the stock price higher and made it relatively expensive for new investors.
The company's price-to-earnings ratio (P/E), which is a common valuation metric, has risen by 54% year to date and currently stands at around 33. A high P/E ratio indicates that investors are willing to pay a premium for the company's earnings potential. Similarly, the price-to-free-cash-flow ratio (P/FCF) is also on the higher side, at about 32. A lower P/FCF ratio typically suggests a more attractively priced stock.
These metrics are essential for assessing the value of a stock, and Apple's current high P/E and P/FCF ratios might give some investors pause, as they could indicate that the stock is trading at a premium. Generally, a P/E below 20 and a P/FCF below 10 are considered more favorable from a valuation standpoint, signaling a potential bargain.
AMZN, MSFT, META, APPL, and GOOGL PE ratios
The chart above shows that Apple's stock is still relatively more affordable compared to the five biggest tech companies. It boasts a lower price-to-earnings (P/E) ratio compared to Amazon, Microsoft, and Meta Platforms, and only slightly higher than Alphabet.
Over the past five years, Apple has outperformed the other companies in the chart, with its stock surging by an impressive 304%. The next closest in terms of growth is Microsoft, with its stock rising by 226%.
Despite its current P/E and P/FCF suggesting that the stock may be relatively expensive at the moment, Apple's history of consistent growth and its promising future in the AI space are likely to drive its shares even higher over the next five to ten years. Taking a long-term perspective can be key when investing in Apple or any other stock, as it can pave the way for significant returns on investment.
Apple holds a leading position in multiple areas of technology and is rapidly expanding its reach. With the potential of AI combined with the success of the iPhone, Apple is expected to continue its growth trajectory, making its stock an attractive option in 2023.
As long as the price is above 185.00, follow the recommendations below:
- Time frame: D1
- Recommendation: long position
- Entry point: 192.83
- Take Profit 1: 198.00
- Take Profit 2: 207.00
Alternative scenario:
If the level of 185.00 is broken-down, follow the recommendations below:
- Time frame: D1
- Recommendation: short position
- Entry point: 185.00
- Take Profit 1: 180.00
- Take Profit 2: 175.00
