Even without much growth to speak of for the last couple of years, this dominating company is still building shareholder value.
There’s no denying that Apple (AAPL 0.18%) is such a commonly suggested stock pick that it’s almost become cliché. Almost. The fact is, whether it’s a predictable pick or not, the consumer tech giant deserves a place in most people’s portfolios for a range of reasons.
Three of these reasons stand out among all the rest right now.
1. Its AI entry is still miles away from reaching its full stride
Although the unveiling of Apple Intelligence in June of last year was met with great fanfare, interest in this artificial intelligence (AI) technology has been underwhelming.
Specifically, despite the tech launching in October to work with the iPhone 16 that became available just a month earlier, the company didn’t see the expected swell of smartphone demand during the final calendar quarter of 2024. IDC says iPhone unit shipments actually fell 4% in the fourth quarter of last year.
It’s far too soon to call Apple Intelligence a bust as a growth driver though. Consumers may simply need a little more time to learn about the features and benefits of Apple’s generative AI tech.
And it may take even more time for consumers and investors alike to fully appreciate how Apple’s artificial intelligence platform is (or eventually will be) a vertically integrated ecosystem capable of offering complete privacy to its users. That just means all the required computing is handled by the properly equipped device itself, or by Apple’s own private artificial intelligence servers.
This is in contrast with apps like ChatGPT or Google’s Gemini, which currently punt all of this work to a cloud that may or may not be secure. Apple is even working with Broadcom to develop its own processing chips capable of powering AI servers, further privatizing its in-house AI by taking third-party chips out of the equation.
Whatever Apple’s future generative AI offering ends up looking like, it stands to be a game changer. Precedence Research suggests the global generative AI industry is set to grow at an annualized pace of 44% through 2034.
2. It’s (finally) thinking outside the box to drive growth
While Apple is positioning itself to offer a truly private AI experience, it’s still being pragmatic about it. It will only make such tech available where it’s allowed and feasible to do so. In other somewhat closed markets that may be wary of being left out of the loop, so to speak, it’s willing to entertain alternative arrangements.
Case in point: On Thursday of last week, China’s e-commerce giant Alibaba announced will be the name providing generative AI support to iPhone owners in this enormous market. In the meantime Apple will also continue to work with China’s top search engine, Baidu, on the artificial intelligence front. These are partnerships that were at least a little less likely for a somewhat isolationist Apple just a few years back.
Were it just these two seemingly unlikely agreements, it might be dismissible as the inevitable and only way to reignite iPhone demand in China. This isn’t the only new growth strategy Apple’s employing though. On Tuesday of last week, the company also announced its Apple TV app is now available to Android users, presenting this crowd with a chance to enjoy programming that was once exclusively available to Apple TV+ subscribers.
It’s probably not a game changer in and of itself. It does point to creative and open-minded thinking of ways to expands its reach, however. Don’t be surprised to see more growth-driving initiatives in the foreseeable future, particularly ones that grow its high-margin services (apps and digital content) arm.
3. It’s a ridiculously profitable, value-creating company
Finally, the best reason to buy the stock like there’s no tomorrow is the same reason to have owned Apple stock for the better part of the past couple of decades. That’s its sheer dominant size and persistent profitability.
Sure, say what you want about Apple’s slowing growth before the COVID-19 pandemic, and outright stagnation since its sales peak in 2022. Net income hasn’t really grown any since then either. Blame the iPhone, mostly, which still accounts for about half of Apple’s total revenue.
AAPL Revenue (TTM) data by YCharts
Just don’t lose perspective. Apple remains the world’s biggest publicly traded outfit for a reason. The bulk of that reason is the fact that it also remains the world’s most profitable company, reporting net income of nearly $94 billion for its fiscal year ended in September. Between that and its $140 billion worth of cash and near-liquid assets on its balance sheet, it can fund a variety of competitive efforts against rivals that would easily qualify as an unfair fight.
In the meantime the company continues to fund a long-standing streak of stock buybacks, reducing this count from more than 26 billion issued and outstanding shares as of 2012 to a 25-year low of just over 15 billion shares now.
If nothing else, this company’s just got too much financial muscle and momentum for anything to stand in its way. It’s just a matter of time before it finds the right growth lever to pull, if it hasn’t pulled it yet.
James Brumley has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple and Baidu. The Motley Fool recommends Alibaba Group and Broadcom. The Motley Fool has a disclosure policy.
