We live in a technology-driven world. High technologies in networking, computing and data processing are bringing many changes to the way we communicate, analyze data and are entertained. And for investors, technology offers huge potential for profitable growth and further innovation.
Nowhere is this more true than in the world of AI. Artificial intelligence is a bright new star in technology, a sudden advancement that promises to propel technology into the next decade and beyond. Particularly promising in this regard is generative AI, with its ability to converse in a more human-like language. The economic potential is also nearly limitless: as an industry, generative AI is expected to reach a total value of approximately $1.3 trillion by the end of the decade.
But even with this rich backdrop, the trick for investors is identifying the right stocks to win in the current technology environment. Some stocks are stagnant, while others are not expected to deliver big gains.
With this in mind, Erste Group analyst Hans Engel has taken a closer look at both Apple (NASDAQ:AAPL) and Intuit (NASDAQ:INTU) and has come to a clear conclusion as to which is the better tech stock to buy.
apple
Let’s start with one of the true leaders in the technology industry: Apple. Apple has consistently driven technological advancements through its innovative products. Recently, CEO Tim Cook made headlines with the company’s promise to integrate generative AI into its product line.
This is not to say that Apple's story is rosy. Industry analysts sometimes see Apple as too dependent on iPhone sales to make money. With the Chinese market becoming unstable and protectionist, that could be a dangerous direction. Offsetting this is Apple's business model, which is focused on building a loyal customer base tied to the company's proprietary operating system. It's never easy for users of Apple products to switch from the Apple ecosystem, and this fact has helped Apple build a customer base of about 2 billion people, or about a quarter of the world's population. These customers will have a strong incentive to stay with Apple as they upgrade their products, try new devices and services, or experiment with new technologies.
This combination of size and a self-sufficient customer base has led to solid financial results for Apple. The company's fiscal second-quarter 2024 report, released in early May, showed solid results with total revenue of $90.8 billion, beating expectations by $190 million. The company's earnings per share were $1.53, beating expectations by 3 cents.
It's worth noting here that Apple shares have risen by over 10% in the past 10 days alone after the company announced the rollout of its long-awaited Apple Intelligence AI initiative in the fall.
Analyst Hans Engel, speaking with Erste Group, noted that Apple's strong customer loyalty and the company's high-quality product line are overall positives.
“Apple benefits from extremely high levels of customer loyalty. Continued innovation in Mac products (including the M4 chip) and high-end iPhones will lead to a continuation of the long-term growth trend. Moreover, the iPhone is especially popular with younger customers, with a 90% market share among teenagers in the U.S. We also believe that its AI integration with Open AI (ChatGPT) will increase software and hardware sales,” Engel noted.
For Engel, all of this has led to a Buy rating on AAPL shares, an upgrade from a previous Hold. (To watch Engel's track record, click here)
Erste analysts have not set a price target for Apple, but the market's average target price is $212.41, suggesting a modest upside of around 2% from the current share price of $207.49. Of the company's 35 recent analyst reviews, 23 are buys, 11 are holds, and 1 is a sell, giving the consensus rating a moderate buy. Apple stock forecast)
Intuit
Next up is Intuit, a software company with a strong presence in the personal finance and small business space. The company's best-known products are TurboTax and QuickBooks, which provide tools for calculating and filing taxes, bookkeeping and basic accounting, and are easily optimized for both home and small business purposes. Intuit's product line also includes Mailchimp, an email automation system that has proven popular with marketers.
A common thread across Intuit's products is their dedication to making financial and marketing systems easy to use. By combining sound record-keeping tools with automated systems, they empower professionals and non-professionals alike to meet and overcome financial challenges with sound decision-making.
A few numbers give you an idea of just how popular these software tools are. The basic number is 100 million. Intuit has roughly that many customers around the world. This customer base is served from 19 offices in eight countries, totaling about 18,000 employees. And in fiscal year 2023, Intuit is on track to achieve total revenue of $14.4 billion.
In its most recent fiscal quarter, Q3 2024, which ended April 30, Intuit reported revenue of $6.7 billion, up 12% year over year and beating expectations by $100 million. This bodes well for the company overall, as the third quarter, which includes U.S. tax season, is Intuit's strongest quarter of the year. The company reported quarterly profit of $9.88 on a non-GAAP basis, up 11% year over year and a solid 50 cents above expectations.
In his article on Intuit, analyst Engel noted not only the company's profitability but also its presence in a competitive niche market. He wrote, “Intuit slightly raised its expected revenue growth for the current fiscal year, which will see revenues increase approximately 13% (year-over-year) to approximately $16.2 billion. The company's revenue growth continues. However, most of Intuit's customers are small businesses and the self-employed, and competitive pressures pose a long-term risk to Intuit. The stock's price-to-earnings ratio is above average for its sector comparison, so we are currently lowering our medium-term outlook.”
This view led the Erste analyst to downgrade INTU from “buy” to “hold.” He declined to confirm a price target for the stock.
Overall, Engel appears to be the exception. INTU stock has a strong buy consensus rating based on 21 recent reviews, including 18 buys and 3 holds. The stock is priced at $632.15 and the average price target of $722.67 suggests there's room for about 14% upside by this time next year. INTU Stock Price Prediction)
Bottom line: Erste analyst Hans Engel clearly recommends Apple over Intuit as the better tech stock to buy today.
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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is for informational purposes only. It is extremely important that you conduct your own analysis before making any investment.
