With the growing preference for leveraging cutting-edge technologies such as generative AI, the demand for modernized and refined computer hardware has become essential for enterprise operations. Moreover, the accelerated pace of digitization is set to propel the industry's expansion further.
In light of this, I evaluated two prominent technology hardware stocks, Apple Inc. (AAPL) and Dell Technologies Inc. (DELL), to determine which holds the potential to yield superior returns.
Resilient hardware plays a pivotal role in optimizing software functionality within the technological infrastructure. The enduring demand for such hardware is expected to persist in the foreseeable future, driven by unwavering investments from consumers, governments, and enterprises, thereby guaranteeing sustained and robust growth.
The widespread adoption of cutting-edge technologies is significantly propelling the industry's upward trajectory. Notably, the surge in demand for intricately specialized hardware components stands out, attributed to the advent of AI and machine learning, highlighting their pivotal role in shaping the industry's future.
The sector is also witnessing the fusion of intelligence with raw power, exemplified by AI-integrated CPUs spearheading rapid learning and adaptation in devices. Concurrently, advancements in edge computing hardware are revolutionizing data processing, offering swifter responses and diminished latency, delineating a transformative epoch in computational capabilities.
Moreover, the burgeoning adoption of Extended Reality, which seamlessly merges physical and digital domains, represents a significant boon for the industry. The increasing prominence of Augmented Reality (AR) and Virtual Reality (VR) across diverse applications is substantially driving the escalating demand for advanced hardware components.
Furthermore, IoT continues to strengthen enterprise digital transformation, fueling substantial demand for interconnected hardware such as sensors, processors, and wireless solutions. According to a report by Mordor Intelligence, the IoT devices market is forecasted to grow at a CAGR of 23.3% and attain a value of $336.64 billion by 2028.
Meanwhile, The Business Research Company forecasts that the global computer hardware market is set to reach $909.80 billion by 2027, at a CAGR of 6.6%. Against this backdrop, AAPL and DELL are strategically positioned to capitalize on the industry's favorable conditions.
In terms of price performance, AAPL has declined 6.1% over the past month, while DELL gained 12.4% during the same period. Additionally, AAPL plummeted 5.1% over the past three months, closing the last trading session at $180.75, whereas DELL gained 27.9% during the same period, closing the last trading session at $94.66.
But which Technology - Hardware stock could be a better pick? Let's find out.
Recent Developments
Recent revelations have unveiled the struggles of the AAPL car, failing to gain traction in the market. With no groundbreaking releases on the horizon, Wall Street is redirecting its focus to AAPL’s generative AI for immediate prospects. Transitioning from the stalled automotive venture, employees will bolster the company’s AI division.
Despite boasting the second-highest market valuation globally, AAPL faces uncertainties amid a turbulent smartphone market. Investors are seeking avenues for sustained growth beyond iPhones, highlighting generative AI as a potential catalyst to invigorate device and service sales in the absence of breakthrough hardware innovations.
Contrastingly, DELL showcased impressive performance, surpassing earnings expectations in its recent quarter, propelled by robust demand for AI servers. The consequent surge in stock value during after-hours trading underscores investor confidence.
Additionally, the PC manufacturer unveiled a noteworthy 20% uptick in its quarterly dividend rate and offered bullish projections for fiscal 2025.
Recent Financial Results
For the fiscal 2024 first quarter that ended December 30, 2023, AAPL’s total net sales increased 2.1% year-over-year to $119.58 billion. Its gross margin grew 9% from the year-ago value to $54.86 billion. However, the company’s total operating expenses rose 1.2% from the prior year’s period to $14.48 billion.
For the fourth quarter of fiscal 2024, which ended February 2, 2024, DELL’s non-GAAP operating expenses decreased 12.4% year-over-year to $3.33 billion. Additionally, non-GAAP net income and non-GAAP EPS attributable to DELL grew 21.8% and 22.2% from the prior year’s period to $1.61 billion and $2.20, respectively.
Past and Expected Financial Performance
Over the past three years, AAPL’s EBIT increased at a CAGR of 16.9%. Moreover, its net income and EPS grew at a CAGR of 16.4% and 20.3%, respectively.
For the fiscal year ending September 2025, analysts expect the company’s revenue to increase 6.3% year-over-year to $412.83 billion. Likewise, its EPS for the same period is expected to grow 9.1% from the previous year’s period to $7.17.
Over the past three years, DELL’s EBIT rose at a CAGR of 7.8%. In addition, the company’s net income and EPS increased at respective CAGRs of 3.1% and 4.4% over the same time frame.
The consensus revenue estimate of $92.30 billion for the fiscal year ending January 2025 reflects a 4.4% year-over-year increase. Additionally, the company’s EPS for the same period is expected to marginally rise from the prior year’s period to $7.19.
Profitability
AAPL’s trailing-12-month revenue is 4.2 times that of what DELL generates. Additionally, AAPL is more profitable, with a trailing-12-month gross profit margin of 45.03% compared to DELL’s 23.38%.
Similarly, AAPL’s trailing-12-month EBITDA margin and trailing-12-month net income margin of 33.73% and 26.16% compare with DELL’s 8.67% and 2.92%, respectively.
Valuation
In terms of forward non-GAAP PEG, DELL is trading at 1.27x, 57.1% lower than AAPL’s 2.96x. Moreover, DELL’s forward EV/Sales of 0.96x is 86.4% lower than AAPL’s 7.05x. Furthermore, DELL’s forward EV/EBITDA of 8.44x compare with AAPL’s 20.69x.
Thus, DELL is more affordable.
POWR Ratings
AAPL has an overall rating of C, which equates to Neutral in our proprietary POWR Ratings system. Conversely, DELL has an overall rating of B, translating to Buy. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. AAPL has a D grade for Momentum, underscored by the stock trading lower than its 50-day and 200-day moving averages, which stand at $188.06 and $183.86, respectively.
In contrast, DELL holds an A grade for Momentum, evident through the stock trading higher than its 50-day and 200-day moving averages positioned at $81.38 and $65.84, respectively.
Moreover, AAPL has a D grade for Value, correlating with its higher-than-industry valuation. In terms of forward EV/Sales, it is trading at 7.02x, 145.5% higher than the industry average of 2.86x. Moreover, the stock’s forward Price/Sales of 7.19x is 147.3% higher than the 2.91x industry average.
On the other hand, DELL has a B grade for Value, consistent with its discounted valuation. In terms of forward EV/Sales and forward Price/Sales, the stock is trading at 0.93x and 0.72x, 67.4% and 75.1% lower than the industry averages of 2.86x and 2.91x, respectively.
Of the 36 stocks in the A-rated Technology - Hardware industry, AAPL is ranked #23, while DELL is ranked #13.
Beyond what we've stated above, we have also rated both stocks for Growth, Stability, Quality, and Sentiment. Click here to view AAPL’s ratings. Get all DELL ratings here.
The Winner
Amid soaring demand and groundbreaking technological advancements, the technology hardware sector is poised for significant growth in the foreseeable future. Leading the charge are hardware giants AAPL and DELL, both primed to capitalize on the industry's promising trajectory.
However, with superior financial performance, an attractive valuation, and robust momentum, DELL's prospects seem to outshine those of AAPL at present.
Our research shows that the odds of success increase when one invests in stocks with an overall rating of Strong Buy. You can view all the top-rated stocks in the Technology - Hardware industry here.
What To Do Next?
43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.
AAPL shares were unchanged in premarket trading Friday. Year-to-date, AAPL has declined -6.00%, versus a 6.89% rise in the benchmark S&P 500 index during the same period.
About the Author: Aanchal Sugandh
Aanchal's passion for financial markets drives her work as an investment analyst and journalist. She earned her bachelor's degree in finance and is pursuing the CFA program. She is proficient at assessing the long-term prospects of stocks with her fundamental analysis skills. Her goal is to help investors build portfolios with sustainable returns.
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