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iShares Core Dividend Growth ETF (DGRO) is a Large-Cap Low V
As earnings season kicks into high gear, all eyes will be on big tech. Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL) recently reported financial results for the quarter ended Sept. 30. Once again, the company showed noticeable progress in both its advertising unit and cloud segment as
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Just two months remain in 2023 -- a year that will likely go down in history as a pivotal period in the rise of artificial intelligence (AI). As impressive as recent leaps forward for the technology have been, this incredible shift is just getting started.
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Shares of Apple (
NASDAQ:AAPL
) and Alphabet (
NASDAQ:GOOGL
) were rocked following their respective quarterly earnings reports. And though the results weren't as impressive as the likes of other "Magnificent Seven" members, I view the weak post-earnings action as more of a chance for contrarians to buy rather than a red flag that should spark a rush to the exits.
Undoubtedly, if you're looking for a reason to sell after recent earnings, the quarters of Apple and Alphabet gave you some reasons. However, if you were looking for positives, each quarter had that, too. Both companies delivered some pretty decent earnings.
That said, the market has set a high bar this time of year, with macro and rate risks atop everyone's radar. Though Apple and Alphabet didn't deliver spectacular results, I don't think they were bad enough to spark a dip.
Therefore, let's
stack up the two tech titans using TipRanks' Comparison Tool.
Apple: A Good Quarter Showcased to a Tough Crowd
After clocking in its fourth straight quarter of sagging sales while setting a low bar for the December quarter — CFO Luca Maestri is looking for revenue to be similar to last year — shares of Apple dipped over 3% in the after-hours session of trade, only to recover most of the lost ground the very next day.
Ultimately, though, Apple ended down just 0.5% following a quarter that I thought had quite a few positives (like record Services revenue). A flat-ish move post-earnings may not seem terrible until you consider the fact that it didn't participate in what was a strong rally for broader markets on Friday that saw the S&P 500 rise almost a full percentage point.
Indeed, four straight quarters of sales in the red may be a horrific headline for some Apple skeptics. However, such stagnation is likely in the rear-view mirror as the consumer looks to heal and Apple looks to put the finishing touches on its Apple Vision Pro headset before it formally launches in a few months.
Neuburger Berman analyst Daniel Flax is just one of the bulls that sees Apple's growth re-accelerating from here. If the upcoming Vision Pro mixed-reality headset is a hit and the iPhone 15 makes up for lost time in the new year, I think the stage could be set for an AAPL stock breakout.
And while Greater China numbers were also flat, thanks in part to competitive pressures from domestic smartphone maker Huawei, I think China concerns are overblown.
Competition is nothing new for Apple. And to think Apple will fail to stay up to speed against Huawei would be to heavily discount the Apple brand. There's still a great deal of brand affinity for Apple and other American brands in China. As such, I view flat Chinese sales as a mere hiccup than the start of a troubling trend. China is still Apple's third-largest market, and it's one in which Apple has room to run.
Apart from the strong brand, I believe Apple's hardware prowess will help it catch up to the likes of Huawei in China over the coming years. Apple Silicon is already building chips on the 3nm process with an intense focus on per-watt performance. My bet is that Apple will widen the per-watt performance gap from here.
Given the stock is trading at where it was two years ago, I don't view Apple as ripe for a continuation of its correction; It already had one.
What is the Price Target for AAPL Stock?
Apple's a Moderate Buy, according to analysts, with 22 Buys and nine Holds assigned in the past three months. The
average AAPL stock price target of $201.47 implies 14.1% upside potential.
Alphabet: Weak Cloud Growth Clouding the AI Story
Alphabet stock was slapped with a brutal two-day plunge of around 12%, even as the firm clocked in better-than-expected earnings results. For the quarter,
Alphabet reported third-quarter
earnings per share of $1.55, comfortably ahead of the $1.46 estimate. Weakness in its Cloud division cast a dark shadow over the quarter, though, with cloud sales rising just 22%, down from 28% in the last two quarters.
Indeed, Microsoft's (
NASDAQ:MSFT
) Azure may very well take share away from Google Cloud as it continues sprinkling in generative AI across its broad suite of products. AI plus Azure may be the perfect combo to take Microsoft's cloud business to the next level. That said, don't forget that Alphabet is an AI-savvy titan itself. Though Alphabet may be slower to effectively monetize AI versus Microsoft, I think Alphabet will make up ground once it's ready to flex its own AI muscles.
For now, Google is hard at work pushing out new AI products, like Bard and Duet AI, which seems to mirror what Microsoft is doing with Bing and Copilot. The AI wars are not over yet -- not by a long shot.
GOOGL trades at just 24.8 times trailing price-to-earnings (P/E), making it the cheapest of the Magnificent Seven stocks. I view Alphabet stock as a relative bargain while the distraction of the
antitrust trial plays out in the background. Who says you need to pay a fat premium for top-of-the-line AI exposure?
What is the Price Target for GOOGL Stock?
Alphabet is a Strong Buy, according to analysts, with 26 Buys and seven Holds assigned in the past three months. The
average GOOGL stock price target of $152.67 implies 18.3% upside potential.
Conclusion
The so-called Santa Claus rally may be arriving earlier this year, but the real gift, I believe, is the recent weakness in Apple and Alphabet. I'm bullish on both companies, as most other investors overweigh the near-term negatives over the long-term positives.
Disclosure
Japanese Prime Minister Fumio Kishida said on Saturday his country, the Philippines and the United States were cooperating to protect the freedom of the South China Sea as he committed to help enhance Manila's security capabilities.
Expectations were incredibly high this earnings season for the so-called "Magnificent Seven." Meta Platforms (
NASDAQ:META
) delivered an impressive round of results that may help it help it run further going into year-end. For the
third quarter, there was pronounced strength right across the board. The firm isn't just growing its user base again; it's keeping them engaged. And with impressive new
artificial intelligence (AI) tools, it's not hard to imagine growth and engagement continuing to heat up.
Despite all the positives, shareholders were more than ready to throw in the towel on the stock, selling the stock after its October 25 earnings report. Chalk it up as a late-October temper tantrum from Mr. Market.
Meta stock has since recovered the ground lost from its quarterly stumble and could be ready to make new 52-week highs as it moves forward with its "year of efficiency" into what I view as a year of AI-driven growth.
Indeed, it's hard to justify buying Meta stock after an incredible
152% year-to-date surge, especially if you consider yourself a value investor. That said, many Wall Street analysts continue to see more upside potential in the name. I'm inclined to agree that Meta stock is a winner poised to continue winning, and I'm staying bullish.
There May be More Outperformance to Come
For the latest quarter, Meta's revenue shot up 23%, as the ad business recovered swiftly. Daily active users (DAUs), a great gauge for social media companies, came in at 2.09 billion, ahead of the 2.07 billion estimate. Average revenue per user (APRU) was also a beat at $11.23, slightly ahead of the $11.05 consensus.
Fundamentally, Meta stock looks to be one of the better plays of the Magnificent Seven. Technically speaking, Meta also looks pretty good, at least according to Rich Ross, a technician over at Evercore, who views Meta Platforms as "best on the board absolutely and relatively."
Not only is Meta's social business picking up traction amid intense macro headwinds, but the firm has plenty of growth drivers (or catalysts) that could help extend its run going into the new year. Generative and conversational AI could help drive even more engagement across Meta's social media Family of Apps.
If AI could help Meta give its ad business a jolt, with the likes of ad automation tools like Advantage+, it could certainly help keep many of its Facebook, Instagram, and WhatsApp users more glued to their screens.
As Meta rolls out its impressive chatbots into its Family of Apps, it will be interesting to see the effect on daily active users (DAUs). Of course, a
ChatGPT-like spike in engagement may very well be out of the question. But at current valuations, I'm not so sure the potential of conversational AI is priced into the stock quite yet. Meta's Llama 2 model (the company's response to chatGPT) holds plenty of potential.
Meta Stock: What About Its Valuation?
At writing, shares of Meta trade at just 27.8 times trailing price-to-earnings (P/E), or 18.5 times next year's expected P/E, both of which are roughly in line with the internet content & information industry averages of 26.1 and 19.4 times, respectively. Its current P/E represents the slightest premium for what I believe is one of the most impressive "AI monetization" plays of the entire Magnificent Seven cohort.
William Blair analyst
Ralph Schackart, who has a Buy rating on the stock, sees "AI advancement driving engagement across the organization."
Undoubtedly, Meta seems like more of an AI company than a virtual reality (VR) firm these days. However, it will be interesting to see how Meta's Quest line stacks up against Apple's (
NASDAQ:AAPL
) Vision Pro in 2024.
Is Meta Platforms Stock a Buy, According to Analysts?
Turning to Wall Street, META stock comes in as a Strong Buy. Out of 37 analyst ratings, there are 36 Buys and one Hold recommendation. The
average Meta stock price target is $384.62, implying upside potential of 22.3%. Analyst price targets range from a low of $332.00 per share to a high of $425.00 per share.
The Bottom Line on Shares of Meta
Even great earnings were met with punishment this earnings season. That has just been the mood lately. However, as sentiment shifts, look for investors to start rewarding AI monetization and sound business models built on top of AI once again.
Disclosure
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