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Headlines
- Apple’s (NASDAQ:AAPL) strong financial performance and solid balance sheet make it a reliable option during economic downturns.
- The company's innovative position in generative AI technology sets it apart from competitors.
The markets have been challenging recently, with the S&P 500 declining by about 7% over the past month and the Nasdaq-100 falling by 12.5%. Even Apple (NASDAQ) stock, often seen as a safe haven, has not been immune to the downturn, decreasing by about 8% over the last month. Additionally, consumers are feeling the impact of high interest rates and inflation as pandemic-era savings dwindle. Despite this, Apple stock is likely to perform better than the broader market in an economic downturn.
Strong Financial Performance and Position
Apple’s revenues are expected to reach record highs this year, with sales projected to grow 9% to $390.27 billion, driven by growth in emerging markets such as India. The company has also managed its costs efficiently, increasing its gross margins to 46% for the first nine months of this fiscal year, up from about 44% in the previous year. This growth is due to a more favorable product mix and higher service sales.
Unique Position in the Generative AI Space
The excitement surrounding generative artificial intelligence has driven part of the current technology rally. Although Apple was somewhat late to join, its new Apple Intelligence offering, which includes upgrades to its Siri voice assistant, new writing assistance tools, calculator features, and image generation, is impressive. Unlike many other big tech companies that have yet to find a solid use case or business model for generative AI, Apple’s implementation appears promising.
The new software features are limited to top-end devices such as the iPhone 15 Pro and iPads with M-series processors, encouraging consumers to upgrade their devices to access AI capabilities. Unlike other big tech players who have invested tens of billions of dollars in AI-related capital expenditures, Apple is likely to leverage more on-device processing.
Consistent Shareholder Returns
AAPL stock has seen strong gains, rising 60% from $130 in early January 2021 to around $210 now, compared to an increase of about 40% for the S&P 500 over the same period. However, the increase in AAPL stock has not been consistent, with returns of 35% in 2021, -26% in 2022, and 49% in 2023. In comparison, Arista Networks (NYSE), another company benefiting from generative AI, has seen its stock surge by 300% over the same period.
Arista is a market leader in high-speed networks catering to hyper-scalers and big corporations involved in the generative AI trend.Apple’s valuation also appears reasonable relative to historical levels, with the stock trading at a P/E of about 28x based on FY’25 consensus earnings, below the 31x in 2021 and 38x in 2020, making Apple reasonably compelling in the current market.
