Better Buy for 2023: Apple vs. Nvidia
The new year is less than two weeks away, making now the perfect time to start organizing your investment plans for 2023. A sell-off over the last 12 months has put numerous stocks on sale, with some of the world's most valuable companies trading at attractive prices.
Tech stocks have long had a reputation as reliable long-term investments. For instance, Apple (NASDAQ: AAPL) and Nvidia (NASDAQ: NVDA) have both seen their shares rise over 200% in the last five years despite declines in 2022.
These companies' stocks are going into the new year at bargain prices, with promising long-term outlooks. However, if you only want to add one to your portfolio for 2023, you'll need to know which is ultimately the better buy. So, let's find out.
Apple
Apple shares have sunk 24% since January as macroeconomic headwinds hit the entire tech industry. However, the iPhone manufacturer has proven its strength over the last year by reporting continued revenue growth from its products and services despite market declines.
For instance, in the fourth quarter of 2022, iPhone revenue rose by 9.6% to $42.6 billion despite worldwide smartphone shipments decreasing by 9.7%, according to IDC. Additionally, Mac revenue grew 25.3% year over year, hitting $11.5 billion, while worldwide PC shipments fell 15%.
However, the most attractive part of Apple's business is its swiftly growing services segment. The subscription-based business includes platforms such as Apple TV+, Music, iCloud, News+, and Fitness+, and offers lucrative profit margins. In Apple's fiscal 2022, services hit a 71.7% profit margin while products reported a 36.3% profit margin. The last year also saw services revenue rise 14% year over year to $78.1 billion, rising more than the iPhone's 7% year-over-year increase.
Moreover, in 2023 the company will have an exciting slate of product releases. Numerous reports state Apple is gearing up to launch its augmented/virtual reality (AR/VR) headset next year. With the device the company will enter the $25.33 billion AR industry, expected to see a compound annual growth rate (CAGR) of 40.9% until 2030.
Apple has a knack for entering new markets and quickly rising to dominance, as it did with smartphones, tablets, Bluetooth headphones, and smartwatches. With consistent product demand, a booming highly profitable services business, and plans to enter a lucrative market, Apple is a great stock pick for 2023.
Nvidia
Nvidia shares have been battered in 2022, with the stock plunging 44% year to date. However, investors who bought in five years ago won't mind much, considering the stock is still up 230% since 2017.
The company primarily suffered from declines in the graphics card (GPU) market, with its gaming revenue decreasing by 51% in Q3 2022 to $1.57 billion. However, the data center segment was Nvidia's biggest by far in its latest quarter. The segment earned $3.8 billion, rising 30.5% year over year and accounting for 64.6% of Nvidia's revenue.
Thanks to a booming cloud computing industry, data centers are in high demand, and Nvidia is reaping the rewards. According to Grand View Research, the $368.97 billion cloud computing market will grow at a CAGR of 15.7% until 2030, with Nvidia likely to profit from a good portion of that growth.
In 2023, Nvidia will team up with Microsoft's Azure to build a "massive cloud AI computer." The partnership is a multi-year collaboration that combines Azure's supercomputing infrastructure with Nvidia's GPUs.
Azure is responsible for the second-largest market share in cloud computing at 21% and is quickly expanding. A successful partnership with Azure could be incredibly lucrative for Nvidia's long-term future.
The GPU market may have suffered from declines in consumer demand in 2022, but it won't stay down forever. Nvidia could come out on the other side with a back-to-form GPU business and a thriving data center segment.
Apple and Nvidia both have excellent outlooks for 2023 and beyond. However, when comparing the companies' price-to-earnings ratios, Apple's sits at 22.01, down 29% since last year, while Nvidia's 69.19 is far less attractive.
Nvidia's business will likely begin to improve in 2023 as GPU sales return and its data center business expands. However, Apple's ability to report consistent growth in a year plagued by market declines makes it a more reliable and resilient business heading into the new year.
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Dani Cook has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple and Nvidia. The Motley Fool recommends the following options: long March 2023 $120 calls on Apple and short March 2023 $130 calls on Apple. The Motley Fool has a disclosure policy.
