Apple (AAPL -0.15%) Y nvidia (NVDA -0.87%) they were both darling tech stocks that lost their luster over the past year. Apple shares hit an all-time high of $180.96 in January but then fell back to $130. Nvidia shares closed at a record $333.41 last November but are now trading at $160.
Both stocks fell as inflation, rising interest rates and other macroeconomic headwinds pushed investors toward more conservative investments. Both companies also grappled with their own specific problems: Apple faced slower sales of iPhones and supply chain disruptions, while Nvidia struggled with the post-pandemic slowdown in the PC market.
Could any of these underdog tech stocks rebound in 2023 and beyond? Let's review their tailwinds, headwinds and ratings to decide.
Image source: Getty Images.
What happened to Apple?
Apple earnings and earnings per share (EPS) increased 33% and 71%, respectively, in fiscal year 2021 (ending September 2021), after finally entering into 5G market with its iPhone 12 family of smartphones. Its revenue and EPS increased another 8% and 9%, respectively, in fiscal 2022, even after it topped that launch and faced new supply chain hurdles.
For the full year, Apple's iPhone sales were up 7% and its Mac sales were up 14% (even as the Windows PC market plunged), while its Wearables, Home & Accessories sales grew 7%. % as it sold more Apple Watches, AirPods, and other peripheral products. Its service revenue also increased 14% as it secured more than 900 million paid subscribers across its ecosystem. All of those growth engines offset its 8% drop in iPad sales.
But fiscal year 2023 will be much more complicated. Apple's main contract manufacturer, foxconn, dealt with disruptions in November when workers at its largest iPhone plant protested COVID-19 restrictions and unpaid bonuses. Apple has already lowered its annual production target for the iPhone 14 Pro and Pro Max from 90 million units to 87 million units to account for those challenges, but future protests could create more unpredictable headwinds for Apple.
However, Apple finished fiscal 2022 with $169 billion in cash and marketable securities, and repurchased a whopping $550 million worth of stock over the past decade. That strong liquidity should make Apple an attractive investment, as long as rising rates continue to crush unprofitable companies with weak cash flows. It is also widely expected that Apple will release a new "mixed reality"headphones next year, and that product could generate a new stream of hardware revenue.
Based on those expectations, analysts believe Apple's revenue and profit will grow 3% and 2%, respectively, this year. Those growth rates are constant, but at 22 times future earnings, Apple stock still isn't cheap.
What happened to Nvidia?
Nvidia controlled 88% of the discrete GPU market in the third quarter of 2022, according to JPR. The remaining 12% was distributed among advanced micro devices Y Intel.
Its adjusted revenue and EPS increased 53% and 73%, respectively, in fiscal 2021 (ending January 2021). In fiscal 2022, his revenue increased another 61%, as his adjusted EPS increased 78%.
Most of that growth was driven by three tailwinds:
- Strong PC sales during the pandemic as more people are working remotely, taking classes online and playing more PC games.
- A growing interest in cryptocurrency mining with GPUs for gaming.
- Using more powerful GPUs in data centers to process complex AI and machine learning tasks.
But in fiscal 2023, analysts expect its revenue to hold flat and its EPS to fall 27%. that slowdown was caused by the PC market's post-pandemic slowdown, sluggish sales in China amid COVID-19 lockdowns and tighter gaming restrictions, and the declining crypto market, all of which offset its strong GPU sales for data centers. The Biden administration's ban on advanced chip sales to China, which affects its tier-one data center chips, will exacerbate that slowdown.
For fiscal 2024, analysts expect Nvidia's revenue and profit to grow 9% and 32%, respectively, as those markets gradually stabilize. But at 38 times future earnings, Nvidia's stock still looks a bit expensive relative to its near-term growth.
But like Apple, Nvidia still has plenty of cash. It finished its last quarter with $2.8bn in cash and cash equivalents and repurchased $8.8bn of stock during the first three quarters of fiscal 2023. That ample liquidity gives it plenty of room to develop new chips, expand into new markets and acquire smaller companies, despite antitrust regulators scrapping its proposed $40 billion acquisition of SoftBank's Arm Holdings earlier this year.
The obvious winner: Apple
Apple is facing a slowdown in the near term, but its business is much more diversified and less cyclical than Nvidia's. It also has a lot more cash, its shares are cheaper, and it arguably has more options to expand its portfolio of products and services than Nvidia. Therefore, I strongly believe that Apple is a better buy than Nvidia in this challenging tech stock market.
Leo sun He has positions at Apple. The Motley Fool holds positions and recommends Advanced Micro Devices, Apple, Intel, Nvidia, and SoftBank Group. The Motley Fool recommends the following: Jan 2023 Long Calls at $57.50 at Intel, Jan 2025 Long Calls at $45 at Intel, March 2023 Long Calls at $120 at Apple, Jan 2025 Short Calls at $45 at Intel and short calls from March 2023 to $130 at Apple. The Motley Fool has a disclosure policy.
