The technology sector is poised for significant growth in a world of cutting-edge innovation. The sector is dominated by large-cap companies with market capitalizations of over $200 billion. These companies are known for their financial strength and global reach and feature prominently in benchmark stock indexes such as the S&P 500 Index ($SPX) and the Nasdaq-100 Index ($IUXX).
Of these big names, Netflix (NFLX) and Apple (AAPL) haven't posted the biggest year-to-date gains in 2024, but they're still attracting bullish attention from analysts. Evercore ISI Group recently rated Netflix a “moderate buy” due to its strong financials, while Bank of America (BAC) analyst Wamsi Mohan maintained his “outperform” rating on Apple amid rising anticipation for the June 10 Worldwide Developers Conference (WWDC).
As we move into June, let's take a closer look at why analysts think these two tech giants are worth reconsidering at current levels.
#1 Tech Stock: Netflix
Founded in 1997 and headquartered in Los Gatos, California, Netflix, Inc. (NFLX) has revolutionized entertainment with its streaming platform, offering a vast library of TV shows, movies and award-winning original content. Originally a DVD rental service, Netflix transitioned to streaming in the 2010s and has become an international powerhouse with a market capitalization of over $276.5 billion.
Netflix leverages artificial intelligence (AI) algorithms that provide personalized recommendations to better connect with customers and drive engagement, and has ambitious plans to expand into gaming in 2024, releasing 40 titles, including homegrown titles like Oxenfree II and Netflix Stories, to expand its gaming portfolio.
Shares of this large-cap stock have risen 57.4% over the past 52 weeks, outpacing the Nasdaq 100 Index's 26.8% gain over the same period. NFLX shares' impressive 29.4% gain year-to-date has also outpaced the overall market's gain so far in 2024.
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In terms of valuation, the stock is trading at 35.36 times forward earnings, which is lower than the company's five-year average of 50.92 times.
On April 18, the video streaming company released its first-quarter earnings results, which beat Wall Street expectations. Revenues rose 14.8% year over year to $9.4 billion, slightly beating expectations on the back of growing membership and a solid pricing strategy, and operating income reached a record high of $2.6 billion. Earnings per share rose 79% to $5.28, putting Netflix ahead of expectations by 17.3%.
Recent efforts to limit password sharing have helped Netflix's subscriber base soar, growing 16% annually to 269.6 million, proving the strength of the company's platform and brand loyalty. In its first-quarter shareholder letter, management highlighted that “despite expected engagement headwinds from paid sharing and increased consumer choice, our engagement remains healthy. Viewing hours per account from owner households remained constant in Q1 2024 compared to the same period last year.”
However, Netflix's shares fell 9% on April 19 after the company forecast slowing revenue growth and said it would no longer disclose quarterly subscriber numbers.
The company now sees revenue growth of 13% to 15% in fiscal 2024, down from 15% to 16% previously, while its operating margin is expected to be 25%, up from 24% previously. Analysts who track Netflix expect the company's earnings to rise 52.2% year over year to $18.31 a share in fiscal 2024 and another 20.8% to $22.12 a share in fiscal 2025.
On May 28, Evercore ISI reaffirmed its “outperform” rating on Netflix and raised its price target to $700 from $650, citing several factors for this positive outlook. Evercore analysts led by Mark Mahaney noted, “No, our $700 price target does not imply a dramatic upside to current NFLX stock price, which is why NFLX is a minor buy for us.”
Evercore highlighted that Netflix is in its strongest financial, fundamental and competitive position ever. Its confidence is based on its latest research showing that U.S. Netflix user satisfaction is 61%, up 5% sequentially, and subscription advertising video on demand (SAVOD) is growing, expanding Netflix's market. Evercore also highlighted the strong user interest in sports content, which is driving retention and attracting new subscribers, as well as the potential for a growing Netflix live events lineup.
Netflix shares have an overall consensus rating of Moderate Buy. Of the 39 analysts covering the stock, 21 have given it a Strong Buy rating, 2 have given it a Moderate Buy rating, 15 have recommended a Hold rating, and the remaining 1 has given it a Strong Sell rating.
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The average analyst price target of $649.50 indicates a potential upside of less than 3% from the stock's current levels, however the market-high price target of $800 suggests the stock could rise by up to 26.8%.
No. 2 Tech Stock: Apple Inc.
Founded in 1977, California-based giant Apple Inc. (AAPL) is a global technology company known for its innovative products such as the iPhone, iPad and Mac. With a massive market capitalization of over $2.9 trillion, Apple is a leader in consumer electronics, software and digital services, and continues to set trends in technology and design while maintaining a loyal customer base and a cutting-edge ecosystem.
Apple shares are up just 6.8% over the past 52 weeks, but are up about 17% from their lows in late April. AAPL was pressured earlier this year by analyst downgrades, weak sales in China, and U.S. antitrust allegations, but strong performance has helped the stock recover from losses. Apple shares are currently trading just 3.2% off their all-time high of $199.62 hit in mid-December.
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On May 16, Apple's board of directors declared a cash dividend of $0.25 per share to shareholders, an increase of 4% and the company's 12th consecutive dividend increase. The annualized dividend of $1.00 per share represents a yield of 0.51%. In addition, the board of directors authorized an additional program to repurchase up to $110 billion of the company's common stock.
In terms of valuation, the company's stock is trading at 29.10 times estimated earnings and 7.65 times sales, higher than some of its peers but lower than Microsoft (MSFT).
The company reported second-quarter results on May 2 that beat Wall Street expectations. Revenues fell 4.3% year over year to $90.7 billion, driven primarily by a 10.5% decline in iPhone sales, which account for roughly half of total revenue. Product sales fell 9.5% year over year during the quarter, while services revenue increased 14.1%. Net income was $1.53 per share, beating market expectations of $1.50.
Looking ahead to the third quarter, management expects revenue to grow in the low single digits year over year, a reversal of recent declines. The Services business is expected to lead with double-digit growth. Analysts who track Apple expect the company's earnings to reach $6.57 per share in fiscal 2024, up 7.2% year over year, and to grow another 9.76% to $7.21 in fiscal 2025.
During Apple's second-quarter earnings call, CEO Tim Cook expressed optimism about the future of generative AI at the company and highlighted the company's heavy investment in the field. “We're investing heavily and we look forward to delivering some very exciting results to our customers soon,” he said, which many market observers interpreted as a hint at AI announcements to come at the company's annual Worldwide Developers Conference (WWDC) scheduled for June 10.
In fact, on May 29, BofA analyst Wamsi Mohan predicted groundbreaking announcements at the upcoming WWDC event, rating the stock “outperform” with a $230 price target. Mohan suggested that AI-enabled smartphones could trigger a “once-in-a-decade” upgrade cycle, propelling generative AI into the mainstream with Apple's 2.2 billion active devices. These AI-powered devices promise vast improvements in photography, health monitoring, security and battery life, setting the stage for rapid adoption and significant growth.
Apple shares have an overall consensus rating of Moderate Buy. Of the 30 analysts recommending the stock, 17 recommend a Strong Buy rating, 3 a Moderate Buy rating, 9 a Hold rating, and the remaining 1 a Strong Sell rating.
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The average analyst price target is $205.96, suggesting a potential upside of 6.4% from the stock's current levels, however the Street's highest price target of $246 suggests the stock could rise by up to 42%.
On the date of publication, Sristi Suman Jayaswal did not hold (either directly or indirectly) any positions in any of the securities mentioned in this article. All information and data in this article is for informational purposes only. For more information please see Barchart's disclosure policy here.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
