Tech stocks are hot right now, with Wall Street rallying over the growth potential of innovations such as artificial intelligence (AI) and virtual/augmented reality. As a result, the Nasdaq-100 Technology Sector index has climbed 51% year to date.
Excitement over tech looks unlikely to dissipate in 2024, making now an excellent time to consider investing in the booming market.
Alphabet (GOOG -0.22%) (GOOGL -0.25%) and Apple (AAPL 2.14%) are two attractive options, with one dominating the digital advertising industry and the other leading the way in consumer tech.
These companies have hit some roadblocks over the last year, burdened by macroeconomic headwinds. However, their businesses have shown signs of recovery and could have a lot to offer investors over the long term.
So, let's look at whether Alphabet or Apple is the better tech stock this month.
Alphabet
Alphabet is easily one of the most undervalued tech stocks right now relative to its long-term potential. The company has made an impressive turnaround in its ad business after suffering significant declines in 2022. Spikes in inflation last year caused countless businesses to implement cost-cutting, with advertising one of the first things to go.
However, Alphabet's third quarter of 2023 suggests the worst declines are over. Revenue for the period rose 11% year over year, beating analyst expectations by $980 million. The company benefited from solid growth in its advertising segments, with net sales in Google Search climbing by 11% and YouTube up by 12%.
Besides a return to ad growth, Alphabet is heading into next year with massive potential in AI. The company is gearing up to launch a highly anticipated large language model called Gemini, which is expected to be competitive with OpenAI's GPT-4. The new model could provide Alphabet with countless opportunities to improve its business and boost earnings as it monetizes its AI features.
Alphabet is on a promising growth path that looks too good to ignore.
Apple
Economic challenges have caught up with Apple this year, and it's experiencing repeated declines in product sales. As a result, the company's revenue tumbled 3% year over year in fiscal 2023, alongside dips in its iPhone, Mac, iPad, and smartwatch segments. However, recent hurdles are precisely why keeping a long-term perspective when investing in tech stocks is crucial.
The stock remains attractive with its leading market shares in multiple product categories and the immense brand loyalty it has built up with consumers. The company has much to gain once the industry inevitably rebounds.
Meanwhile, despite poor market conditions, Apple has continued to attract new customers. In the fourth quarter of 2023, half of Mac and iPad purchases were made by first-time users, with two-thirds of Apple Watch buyers also new to the product.
New customers are positive for Apple's long-term outlook as they present new earning opportunities through services. The company is home to a highly profitable services business that includes its App Store and subscription-based platforms like iCloud, Apple TV+, Apple Music, and more.
Services revenue rose 9% in 2023, outperforming all other parts of Apple's business. And services profit margins hit over 70%, while the same metric for products hovered around 36%.
It's also crucial to remember what years of success have done for Apple's financial health. Even while facing economic headwinds, the company achieved over $99 billion in free cash flow. That figure suggests Apple has the resources to overcome current challenges and continue investing in its future.
Is Alphabet or Apple the better tech stock?
As two of the world's most valuable companies, it's hard to go wrong with Alphabet or Apple. However, when it comes to investing in tech, Alphabet looks like the better option. The company has a more promising position in AI, a technology likely to boost countless markets. Meanwhile, the potency of its various software brands gives it significant market shares in digital advertising, search engines, productivity services, video sharing, and more.
Data by YCharts; PE = price to earnings.
Moreover, the table above shows that Alphabet's price-to-earnings ratio and price to free cash flow are quite a few points below the same metrics for Apple. Consequently, Alphabet is trading at a far better value, making it a bargain tech stock and a must-buy this month.
