Earnings season kicked off last month, causing considerable movement in the stock market. Tech stocks didn't fare too well, with the Nasdaq Composite index down more than 9% since mid-July. As an industry leader, Apple's (AAPL -0.98%) stock has similarly tumbled 6% since then.
Wall Street appears to have grown skeptical of artificial intelligence (AI) and how far it can realistically push tech companies. Doubt has caused many stocks to fall over the last month, underlining the importance of a long-term mindset when investing in stocks, especially in tech.
However, the tech industry has proven time and time again its ability to provide consistent gains over the years, fueled by innovations and investment in new technologies. AI is likely no different. Companies have barely scratched the surface of its capabilities and only recently began adding the generative software to everyday items like smartphones, productivity software, and more.
Meanwhile, Apple is well positioned in the industry, with nearly unrivaled brand loyalty from its users and significant cash reserves.
Apple's share price has steadily risen 223% over the last five years, while free cash flow climbed 77%. The company is known for its reliability, with the potential of AI likely to keep it expanding for years. So, despite a recent dip, it's one growth stock to buy right now.
Apple Intelligence is just around the corner
Apple was largely left out of last year's AI rally, as companies like Microsoft and Amazon got a head start. Apple struggled to find its place in the industry as its peers primarily focused on AI cloud growth. However, that appears to be changing in the second half of 2024.
This fall, the iPhone maker will launch Apple Intelligence, a system that will bring a range of AI updates to core products like the iPhone, iPad, and Mac. According to Apple, the platform will harness "the power of Apple Silicon to understand and create language and images, take action across apps, and draw from personal context to simplify and accelerate everyday tasks."
As a result, Apple Intelligence will only be available on the company's newest and most powerful devices. iPhone users will need an iPhone 15 Pro or later. Meanwhile, Macs and iPads must be running any of Apple's M line of chips (M1 to M4) to access the AI features.
Apple Intelligence sees Apple using AI to reinvigorate product sales. The company posted its earnings results for the fiscal third quarter of 2024 (ended June 29) on Aug. 1, reporting revenue gains of 5% year over year and beating Wall Street forecasts by $1.4 billion. iPhone sales were relatively flat for the quarter, falling 1% year over year.
However, a 24% leap in iPad sales illustrated the company's powerful role in consumer tech and growth potential for its iPhones. Q3 saw Apple launch a new iPad for the first time since 2022, triggering a frenzy of upgrades. CEO Tim Cook revealed about half of the iPads sold during the quarter were bought by first-time users, indicating the company hasn't yet saturated the tablet market.
The boost in iPad sales could foreshadow what's possible with Apple's coming iPhone 16 release in September and the launch of Apple Intelligence. iPhone sales were stagnant last quarter, but a new release alongside one of its most extensive software updates could convince millions of consumers to try out Apple's latest offerings.
Meanwhile, reports of a potential foldable iPad and/or iPhone by 2026 only strengthen Apple's outlook as it continues to innovate.
Apple remains a cash cow with an attractive valuation
Apple hit $27 billion in free cash flow in its latest quarter, considerably outperforming Microsoft and Amazon. The company regularly beats its peers in free cash flow, proving the reliability of its business. And despite challenges with product sales over the last year, the company still posted revenue growth in its latest quarter and expanded its vast financial reserves.
Data by YCharts
This chart shows that Apple's quarterly free cash flow has expanded at a faster rate over the last year than Microsoft's or Amazon's. What's more impressive is that Apple has done this before seeing a return on its investment in AI. Meanwhile, Microsoft and Amazon have already posted earnings gains from their AI offerings.
The figures are promising as Apple begins a quarter when product sales could soar after its September launches. Additionally, the company's growing cash hoard suggests it has the means to continue expanding in AI and catch its rivals.
Data by YCharts
Moreover, the data above shows Apple has the lowest price-to-earnings (P/E) ratio among some of the most prominent names in AI. Its P/E of 33 doesn't signal a major bargain, but it potentially makes it one of the best-valued ways to invest in artificial intelligence.
Given its its coming product launches, Apple is a growth stock worth buying after a recent dip.
