The technology hardware market faces tough competition, supply chain issues, and the constant need for innovation. However, it's poised for significant growth this year due to easing supply chains, higher disposable incomes, increased investments in digitization, a strong desire for hi-tech products, and consumers' demand for smart electronics like smartphones and computers.
The Consumer Technology Association forecasts that U.S. retail sales of consumer tech will rise 2.8% to $512 billion in 2024. Advanced hardware solutions are in high demand due to the adoption of advanced technologies like machine learning, blockchain, the Internet of Things, Augmented and Virtual Reality (AR & VR), quantum computing, and edge computing.
Cutting-edge hardware is mandatory to meet the complex processing demands and increased workloads. The IT hardware market is expected to grow at a 7.9% CAGR, reaching $191.03 billion by 2029.
Given this backdrop, let’s compare two Technology - Hardware stocks, Apple Inc. (AAPL) and Dell Technologies Inc. (DELL), to understand why DELL holds greater potential for investors this May.
The Case for Apple Inc. Stock
Apple Inc. (AAPL) designs, manufactures, and markets smartphones, personal computers, tablets, wearables, and accessories worldwide. The company offers the iPhone, the Mac, the iPad, and wearables, home, and accessories including AirPods, Apple TV, Apple Watch, Beats products, and HomePod.
AAPL’s stock has declined 3.7% over the past month to close the last trading session at $165.84, However, the stock has gained marginally over the past year.
AAPL’s revenue grew at a CAGR of 9.5% over the past three years. On the other hand, its Total Assets declined at a CAGR of 0.1% over the past three years.
In terms of forward EV/EBITDA, AAPL is trading at 18.89x, 34.9% higher than the industry average of 14x. Additionally, the stock’s forward EV/EBIT of 20.81x is 8.8% higher than the industry average of 19.14x.
In terms of the trailing-12-month Return on Common Equity, AAPL’s 154.27% is considerably higher than the 3.49% industry average. Likewise, its 42.38% trailing-12-month Return on Total Capital is significantly higher than the industry average of 2.48%. However, its 45.03% trailing-12-month gross profit margin is 7.5% lower than the industry average of 48.67%.
For the fiscal first quarter that ended December 30, 2023, AAPL’s total net sales increased 2.1% year-over-year to $119.58 billion. Its operating income grew 12.1% from the year-ago value to $40.37 billion. The company’s net income and EPS stood at $33.91 billion and $2.18, up 13.1% and 16% year-over-year.
However, the company’s total operating expenses rose 1.2% over the prior-year quarter to $14.48 billion. Also, its iPad and Wearables, Home and Acccessories sales declined 25.3% and 11.3% year-over-year to $7.02 billion and $11.95 billion, respectively.
Street expects AAPL’s EPS for the quarter ended March 31, 2024, to decrease marginally year-over-year to $1.51. Its revenue for the quarter ending June 30, 2024, is expected to increase 1.8% year-over-year to $83.24 billion. AAPL surpassed the Street EPS estimates in each of the trailing four quarters.
AAPL’s stock is trading below its 50-day and 200-day moving averages of $174.69 and $182.07, respectively.
AAPL’s POWR Ratings are consistent with this outlook. It has an overall rating of C, translating to Neutral in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has a C grade for Growth, Momentum, Stability, and Sentiment. Within the B-rated Technology - Hardware industry, AAPL is ranked #20 out of 37 stocks. To see the additional grades of AAPL for Value and Quality, click here.
The Case for Dell Technologies Stock
Dell Technologies Inc. (DELL) designs, develops, manufactures, markets, sells, and supports various comprehensive and integrated solutions, products, and services in the Americas, Europe, the Middle East, Asia, and internationally. The company operates through two segments, Infrastructure Solutions Group (ISG) and Client Solutions Group (CSG).
DELL’s stock has gained 168% over the year to close the last trading session at $115.54.
DELL’s EBIT grew at a CAGR of 16.7% over the past three years. However, its net income declined at a CAGR of 0.4% during the same period.
In terms of forward non-GAAP P/E, DELL is trading at 15.25x, 33.7% lower than the industry average of 23.02x. Likewise, its EV/EBIT is trading at 12.67x, 33.8% lower than the 19.14x industry average.
In terms of the trailing-12-month Capex / Sales, DELL’s 3.12% is 34.5% higher than the 2.32% industry average. Likewise, its 6.63% trailing-12-month EBIT margin is 35.3% higher than the 4.90% industry average. On the other hand, its 7.15% trailing-12-month levered FCF margin is 24.4% lower than the 9.46% industry average.
DELL’s total net revenue for the fourth quarter ended February 2, 2024, came in at $22.32 billion, down 10.9% year-over-year. However, its non-GAAP operating expenses decreased 12.4% from the year-ago value to $3.33 billion. In addition, DELL’s non-GAAP net income and non-GAAP EPS attributable to DELL grew 21.8% and 22.2% over the prior-year quarter to $1.61 billion and $2.20, respectively.
Analysts expect DELL’s EPS for the quarter ending April 30, 2024, to decrease 6.9% year-over-year to $1.22. Its revenue for the same quarter is expected to increase 3.4% year-over-year to $21.63 billion. It surpassed the consensus EPS estimates in each of the trailing four quarters.
DELL’s stock is trading above its 50-day and 100-day moving averages of $109.02 and $93.13, respectively.
DELL’s POWR Ratings reflect its bleak prospects. It has an overall rating of C, which translates to Neutral in our proprietary rating system.
It has a C grade for Growth, Value, and Quality. Within the same industry, it is ranked #19. In total, we rate DELL on eight different levels. Beyond what we stated above, we also have given DELL grades for Momentum, Stability, and Sentiment. Get all the DELL ratings here.
AAPL vs. DELL: Which Stock Will Drive Your May Profits?
The innovations in technology and the ever-rising need for faster processing will drive the tech hardware industry’s long-term growth prospects. With the rise of artificial intelligence, consumer electronics could undergo upgrades. Companies like AAPL and DELL are likely to benefit from the refresh cycle for personal computers, smartphones, and other gadgets that were purchased during the pandemic.
Both AAPL and DELL look well-positioned to capitalize on the industry’s promising prospects. Although both AAPL and DELL have mixed fundamentals and mixed historical growth metrics, DELL appears to be a better choice than AAPL due to its strong momentum and favorable analyst estimates.
Our research shows that the odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. View all the top-rated stocks in the Technology – Hardware industry here.
What To Do Next?
Discover 10 widely held stocks that our proprietary model shows have tremendous downside potential. Please make sure none of these “death trap” stocks are lurking in your portfolio:
AAPL shares were trading at $166.62 per share on Tuesday morning, up $0.78 (+0.47%). Year-to-date, AAPL has declined -13.35%, versus a 6.53% rise in the benchmark S&P 500 index during the same period.
About the Author: Abhishek Bhuyan
Abhishek embarked on his professional journey as a financial journalist due to his keen interest in discerning the fundamental factors that influence the future performance of financial instruments.
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