3 Reasons to Buy Apple Stock Like There's No Tomorrow
Apple (NASDAQ: AAPL) has long been known for its growth. The company's stock has risen 800% over the last decade, massively outperforming the S&P 500's 183% rise. Nearly unparalleled brand loyalty and a cash-rich business have allowed the company to hit historic heights.
Macroeconomic headwinds and slipping product sales have challenged the company over the last year. General reductions in consumer spending power and a boost in chip performance over the years that has negated annual product upgrades have forced Apple to rethink its business.
As a result, the tech giant has pivoted toward the budding artificial intelligence (AI) market. Meanwhile, Apple is gradually transitioning away from third-party chips to in-house-developed hardware, improving profit margins and taking more control of its product designs.
The company appears to be entering a new chapter in its growth history, and it could see its stock reach record heights in the coming years. So, here are three reasons to buy Apple stock like there's no tomorrow.
1. The perks of moving to in-house chips across the board
For more than a decade, Apple has used Qualcomm's modem chips in its iPhones. However, in 2018, the company began designing its own modem to eventually shift its smartphones completely to homegrown chips. And that time could be just around the corner, with Apple's current agreement with Qualcomm ending in 2027.
The move away from third-party modems came after Apple began to shift its entire Mac lineup from Intel processors to its custom-designed Apple Silicon M line of chips in 2020. This decision has been a massive success Apple, allowing it to offer some of the most powerful and efficient home computers on the market. Meanwhile, Mac sales have risen 31% since Apple Silicon's announcement four years ago.
There are multiple reasons for Apple to switch to in-house chips across the board. For one, it improves profit margins by massively reducing chip costs. It may still need to pay Qualcomm royalties to avoid patent infringements, but the overall cost should be far lower than paying the company per modem. However, this could change over the long term as Apple potentially creates a new chip that combines Wi-Fi and Bluetooth connectivity while improving battery life.
Meanwhile, taking over complete control of its chips allows Apple to design products more efficiently, with authority over nearly every aspect of the devices. This grants the company more creative control, permitting more space for creativity and innovation.
Being responsible for its iPhone's modems could allow the company to expand its smartphone lineup with products that are foldable, AI-capable, and offer a better user experience. As a result, consumers could be more motivated to upgrade in the coming years, boosting earnings and Apple's stock price.
2. Boosting its entire business with AI
In addition to restructuring its chip division, Apple made a massive push into AI in 2024. The company is overhauling its product lineup to expand its AI offerings and become the go-to for consumers requiring AI-capable devices.
Next month, Apple will unveil its iPhone 16, its first smartphone designed with AI in mind. The launch will be followed by the release of Apple Intelligence, its name for a massive update to its operating systems. Apple Intelligence will bring language, text, and image-generation tools to iPhones, Macs, and iPads. Meanwhile, Siri has been completely reworked to have a richer language understanding and will grant users access to OpenAI's ChatGPT for specific questions.
Apple Intelligence will only be available on the company's more recent devices, including iPhone 15 Pros and higher and Macs/iPads equipped with Apple Silicon chips. Apple expects the move to encourage a flurry of consumer product upgrades.
However, the coming launches appear to be just the start of Apple's journey into AI. Analyst Craig Moffett of Moffett Nathanson Research expects Apple "will eventually underpin a paid-for digital assistant, giving yet another boost to their ultra-high-margin Services business."
Services are by far the company's most profitable division, boasting gross margins of 74%. Meanwhile, the segment is expanding rapidly, posting revenue growth of 14% year over year in the third quarter of 2023. Adding paid-for AI features to its catalog of digital products could massively bolster its services division.
3. Potentially better valued than other AI stocks
Data by YCharts
This chart shows that Apple is potentially a bigger bargain than some of its AI peers. The company has a lower price-to-earnings ratio (P/E) and price-to-free cash flow than some of the most prominent names in the industry, indicating its stock offers the most value.
Alongside a promising shift in its chip supply chain and a push into AI, Apple's stock is a no-brainer right now -- and one to buy like there's no tomorrow.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Dani Cook has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon, Apple, Microsoft, Nvidia, and Qualcomm. The Motley Fool recommends Intel and recommends the following options: long January 2025 $45 calls on Intel, long January 2026 $395 calls on Microsoft, short August 2024 $35 calls on Intel, and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
