Apple (AAPL 1.35%) has been a huge winner in the smartphone era, which it pioneered with the iPhone. Now, it looks to be at risk of falling behind in the age of artificial intelligence (AI), cloud computing, and mixed reality. The tech giant failed with the launch of its Vision Pro product and has struggled to release any products related to consumer AI while the competition pushes ahead aggressively.
It is time to forget Apple stock. Here's why you should buy two AI beneficiaries, Taiwan Semiconductor Manufacturing (TSM 1.89%) and ASML (ASML 2.98%), for your portfolio instead.
NASDAQ: AAPL
Key Data Points
Apple's lagging innovation
Revenue growth has been stagnant at Apple for many years now. The iPhone is maturing, and while it is still a great product, there are only so many dollars floating around the world that can be dedicated to buying a smartphone. In the last decade it has released some successful ancillary products such as the Apple Watch and Air Pods, but these are not large enough to move the needle for a company with a market capitalization of $3 trillion.
Management claims the company has not been resting on its laurels, but the results so far have been underwhelming. The iPhone is increasingly similar with each yearly update, minimal AI features have been added to its branded "Apple Intelligence" products, and the Vision Pro virtual reality headset was a flop. Other big technology companies such as Alphabet, Amazon, and Meta Platforms are pushing ahead with these cutting-edge technologies, leaving Apple in the dust.
Unsurprisingly, Apple's revenue growth has slowed down quite a bit as a result. This year, analysts project just 4% revenue growth for the technology giant, which will mostly come from software and services revenue. The stock trades at an expensive price-to-earnings ratio (P/E) of 31 even though it is barely growing anymore. This leaves much to be desired with the stock's valuation. There is not much upside to owning Apple stock today versus other fast-growing technology players around the world.
Image source: Getty Images.
Betting on advanced semiconductor manufacturing
Speaking of fast-growing technology companies, we have ASML and Taiwan Semiconductor Manufacturing (TSMC, for short). These are two players in the computer chip and semiconductor supply chains -- suppliers to Apple, it should be noted -- that are benefiting immensely from the rising spend on AI.
TSMC is an outsourced manufacturer of computer chips for companies like Nvidia. It is one of the only companies in the world that can build advanced computer chips at scale, meaning that companies are flocking to send in orders to get computer chips to power their datacenters, and increase capacity for AI training and inference. Last quarter, TSMC's revenue grew at a blistering 35% year over year, and revenue is expected to grow 36% year over year in 2025. Today, you can buy the stock at a P/E ratio of 28, lower than Apple.
NYSE: TSM
Key Data Points
ASML is a supplier to TSMC, with its advanced lithography machines used for semiconductor manufacturing. It is the only company in the world to crack the code on extreme ultraviolet lithography -- meaning that without ASML machines, there are no ultrafast computer chips for AI. TSMC and other computer chip manufacturers need to use ASML machines, giving the supplier huge pricing power. Last quarter, ASML's revenue grew 46% year over year to $8.38 billion. Revenue is expected to grow by 20% in 2025, and you can buy the stock at a similar P/E ratio to Apple.
ASML Revenue Growth Estimate for Current Fiscal Year data by YCharts
Sell Apple, buy ASML and Taiwan Semiconductor
The bottom line is that ASML and TSMC are both growing quickly and are trading at reasonable prices in regard to their P/E ratios. Apple is growing slowly, facing increasing competitive risks, and trading at a similar P/E ratio. ASML and TSMC are virtual monopolies in their respective fields.
We shouldn't forget lawsuits threatening Apple's services cash cow. Its huge annual payment to make Google the default search engine on Apple devices may be deemed illegal, while the App Store is now being forced to open up to other payment providers that can circumvent Apple's 30% take rate on mobile purchases. These developments could greatly impact Apple's earnings power in the years to come.
NASDAQ: ASML
Key Data Points
Bottom line: Drop Apple stock, and buy some ASML and TSMC stock to get technology exposure in your portfolio and ride the artificial intelligence (AI) wave.
