Apple is starting to appeal to investors looking for a safe haven from higher-flying, higher-risk artificial intelligence stocks, according to a recent note by Bernstein. The analysis comes as Jensen Huang’s departure from Nvidia rattles the AI trade, adding to recent investor anxiety surrounding tech stocks in general. “With little correlation to tech peers, Apple now trades in line with high quality consumer stocks,” Bernstein analysts led by Mark Newman said in a report on Thursday. Apple had a strong run even after John Ternus succeeded Tim Cook as CEO , and it faced rising memory costs and narrower margins. Unlike other “Magnificent Seven” companies, the iPhone maker has earned safe haven status thanks to a lack of correlation with tech peers that are spending hundreds of billions of dollars in capital expenditures. At Apple, capex is less than 2% of revenue. As a result, shares in the the largest company in the U.S. by market value have benefited from the recent AI sell-off, sending its price-to-earnings multiple to all-time highs. Bernstein reiterated an outperform rating on Apple in the report, and a $380 price target, implying about 7% upside from Thursday’s close. Costco of tech “The market has long decoupled Apple from the rest of the mega-cap tech names and reclassified Apple to a consumer compounder,” Newman said. Apple currently trades in line with consumer stocks on revenue growth, while its earnings and free cash flow, or FCF, growth sit modestly above the line. Apple’s current valuation is 37 times its expected earnings per share for 2027 and roughly twice the market’s forward earnings multiple. Among companies with a market capitalization above $200 billion and consensus future EPS growth of below 15%, four companies exceed forward P/E of 30, namely Costco at 46 times, Walmart at 39 times, Apple at 37 times and General Electric at 36 times, according to Bernstein. Apple’s expected annual revenue growth through 2029 is roughly 9%, faster than Costco ‘s 7% and Walmart ‘s 5%. Apple also wins on free cash flow generation and shareholder returns. With an estimated 3.1% FCF yield and stock buybacks equal to 3% of total market capitalization in 2027 and 3.2% in 2028, Apple is expected to return almost all of its free cash flow to shareholders through buybacks and dividends. Newman said Apple exhibits many characteristics of a consumer staples stock, such as predictable replacement demand, pricing power with suppliers and customers, relatively low investment needs and steady cash returns to shareholders. Together, these traits make its earnings more dependable, he said. Bernstein’s smartphone survey found that 90% of iPhone users stayed with the brand when replacing their previous device. Similarly, Costco’s worldwide annual membership renewal rate is also about 90%, and the market puts a 40 times earnings multiple on Costco, Bernstein said. “On forward revenue growth metric, Apple is now the fastest growing company if put in the consumer universe and trades in-line with the rest of its peers on a revenue growth adjusted basis; on earnings and FCF growth it sits modestly above the line, alongside Ferrari and the scale retailers,” Newman said.
How Apple became the safe ‘Costco’ of tech. Bernstein says keep buying
By admin
0
5
RELATED ARTICLES
