Shares of Apple (AAPL 0.01%) have trickled up 15% year to date, lower than rivals like Microsoft and Amazon, and roughly matching the rest of the market. The company has hit some roadblocks during the past year, faced with the aftermath of an economic downturn in 2022, declines in product sales, and missing out on the initial boom in artificial intelligence (AI).
However, recent developments suggest Apple is turning things around. Strategic discounts in China are attracting consumers and significantly boosting iPhone sales. Additionally, the tech giant recently announced the launch of a new AI platform that could elevate its entire product lineup and help it achieve a lucrative role in the budding industry.
Moderate stock growth in 2024 has kept Apple's shares at a reasonable price point, potentially making the company one of the bigger bargains in tech.
So, here are three reasons to buy Apple stock like there's no tomorrow.
1. Improving sales in China
China is Apple's third-biggest market, accounting for 19% of its sales in fiscal 2023. However, during the past year, rising tensions between the U.S. and China have made it challenging for American tech companies to attract the East Asian country's shoppers. Meanwhile, domestic brands like Huawei have gained traction.
As a result, Apple's sales in Greater China fell 8% year over year in the fiscal second quarter of 2024 (ended in March). The company has responded to declines by offering aggressive discounts on its products in China, which appears to be paying off.
NASDAQ: AAPL
Key Data Points
Reuters reported on June 28 that iPhone sales spiked 40% year over year in May, continuing to fuel a rebound that began in April. While discounts don't often do much for profitability, the sales are more promising in Apple's case thanks to the advanced connectivity between its products.
Apple has strategically created an interconnected ecosystem that encourages consumers to try its other offerings after the purchase of their first Apple product. This strategy means iPhone users are much more likely to buy a Mac when shopping for a computer or an iPad if they need a tablet. And it's the same for the company's wide range of digital services, including the App Store, Music, iCloud, and Apple TV+. Each of these services lets Apple continue making money on the iPhone years after a consumer has purchased the device.
As a result, new Chinese customers will likely generate sales for years in the East Asian nation.
2. Past growth suggests vast potential in AI
Apple was slightly late to the AI party. As a result, its stock hasn't benefited much from the rally in AI, which companies like Amazon and Nvidia have enjoyed during the past year. However, Apple's approach to AI isn't out of the norm.
The company isn't known for always being the first to a new technology. Instead, Apple prefers to observe the competition while researching and honing its technology before presenting a product that often grows to dominate the market. This method has enabled Apple to succeed immensely in smartphones, tablets, headphones, and smartwatches. The company wasn't the first to enter many of these markets, but now it is the leading brand in each of them.
Consequently, the debut of Apple Intelligence this past month is an exciting development. The new AI platform will bring generative features across the company's product lineup, including a major upgrade to Siri, image and language generation tools, and more. However, the catch is consumers will need an iPhone 15 Pro or higher or a Mac/iPad equipped with an M1 through M4 chip to access Apple Intelligence.
Despite recent challenges, Apple remains a behemoth in tech with immense brand loyalty. The company's use of AI to boost product sales is promising, and with $102 billion in free cash flow (what's left of cash flow after capital spending), I wouldn't bet against Apple thriving in AI over the long term.
3. Apple's stock is potentially one of the bigger bargains in tech
Apple's modest stock gains since the start of 2024 have kept its share price at a better value than many of its competitors. However, improvements in its business suggest it won't stay like that for long.
Data by YCharts
The table above uses two key metrics to compare the valuations of some of the most prominent names in tech: price-to-earnings (P/E) and price-to-free cash flow. For both metrics, the lower the figure, the better the value. The data show Apple is potentially one of the bigger bargains in tech, with a significantly lower P/E and price-to-free-cash flow than some of its peers.
With recovering product sales in China and a promising push into AI, Apple is a no-brainer buy right now and an excellent option for long-term investors.
