Apple (NASDAQ:AAPL) stock certainly has multiple, positive catalysts going forward. The most important of these drivers are:
- The artificial intelligence (AI) enhancements it just introduced.
- The iPhone’s revitalization in China.
- The Street’s renewed love affair with Apple stock.
But for various reasons, these catalysts could very well be quite limited in terms of time and scope. Meanwhile, the stock’s elevated valuation and Warren Buffett’s decision to unload large amounts of AAPL stock, make me more cautious about it.
In light of all of these points, I believe the shares could trend much higher in the medium term. However, over the long term, several other large-cap AI stocks are both safer bets than Apple. They are likely to outperform AAPL stock, too. Therefore, I urge long-term investors to sell at least a meaningful portion of their Apple shares. Instead, buy one or more of the other companies mentioned below.
The AI Catalyst Could Be Limited
According to Wired, Apple’s AI update, which it calls Apple Intelligence, “makes Siri smarter, rewrites your emails and essays, creates never-before-seen emoji, and turns rough sketches into bland AI art.”
Those updates sound quite appealing. But a few issues could prevent Apple Intelligence from sparking a huge iPhone update cycle. First, everyone with “iPhone 15 Pro and newer models” will automatically get all the features of Apple Intelligence. Many other models will be updated with a limited subset of AI capabilities. As a result, the owners of these devices may not have a tremendous sense of urgency to upgrade yet. And with many consumers becoming less confident amid inflationary pressures and a slowing job market, a high proportion of older model owners may not look to upgrade either.
Moreover, in the past Apple has had some notable execution problems. Specifically, when the iPhone was first released, the device frequently dropped calls while Apple Maps often malfunctioned. Apple TV+ has also had trouble attracting large audiences. Any meaningful execution issues involving Apple Intelligence could further limit its impact on iPhone sales this year.
Finally, I believe the the extent of the iPhone upgrade cycle could be limited by warnings issued by Tesla (NASDAQ:TSLA) CEO Elon Musk regarding the potential privacy issues created by Apple’s partnership with OpenAI on Apple Intelligence.
China Revitalization and the Street’s Renewed Love of Apple
Foreign-made smartphone sales in China surged 52% in April, compared with the same period a year earlier, “a research firm affiliated (with) the Chinese government” reported. The data suggests that iPhone sales in China jumped in April.
However, the surge follows a sharp decline of 37% in iPhone sales in January and February. It could prove to be short-lived. Among the factors that could limit iPhone sales are continued problems with the Chinese economy, increased enmity between the U.S. and China and various moves by its competitors in the country. One negative signal regarding the iPhone’s competitive position in China is the fact the company meaningfully cut the device’s prices in May.
The Street is in love with AAPL stock again since the company announced a huge, $110 billion buyback of its own shares. As a result, along with announcing AI Intelligence, the shares jumped 25% between May 3 and June 17. That upward momentum is likely to continue for some time. Yet it could falter over the long run if the company’s upgrade cycle fails to meet the Street’s expectations.
Valuation, Buffett, and Better Buys
Apple’s current forward price-to-earnings ratio of 29 times is quite elevated for a company whose revenue is growing quite slowly and faces steep execution and competitive risks.
Buffett unloaded slightly over 116 million shares of Apple stock in the first quarter. The move makes me less confident in the firm’s longer-term outlook.
In my view, many other large-cap tech companies face meaningfully less execution and competitive risks than Apple. For example, it’s absolutely clear that Amazon (NASDAQ:AMZN) , Microsoft (NASDAQ:MSFT) and Super Micro Computer (NASDAQ:SMCI) are benefiting tremendously from the AI boom. They will continue to do so for the foreseeable future. Since that’s not the case for Apple, I view the other names as better buys for long-term investors than Apple.
On the date of publication, Larry Ramer held long positions in AMZN and SMCI. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.