US tech stocks continue to embarrass the rest of the markets. The ‘Magnificent 7’ of Apple (NASDAQ: AAPL), Tesla, Meta, Nvidia, Alphabet, Amazon and Microsoft shares were up an average of 71% last year. The rest of the S&P 500 was up just 6%.
Take away these seven tech giants and the American market’s performance is similar to the so-called underperforming UK.
US tech might continue to drive the majority of stock market returns. If so, it makes sense to increase my exposure. And, of the firms above, Apple just dropped $14 and I think it’s the best investment of the lot. Here’s why.
Of course, the company Steve Jobs and Steve Wozniak created is hardly a hidden gem. A $3trn market value makes Apple the world’s largest company and it’s by far billionaire investor Warren Buffett’s biggest holding.
But the world’s most popular stock boasts an edge like few others. Buffett talks about the advantages of an ‘economic moat’ which leads to loyal customers and a large margin of safety.
Same story
Well, Apple might have the best moat of any company on the planet. An adoring fanbase tunes into every new product launch. And with an ecosystem of products that work in sync, once you’re in, it’s hard to get out. I know this all too well. I’m surrounded by four separate Apple devices within hand’s reach.
An even bigger advantage, and one less talked about, is the human capital. US tech pays the biggest salaries and therefore attracts the best minds, not just from California or from the wider United States, but the entire world. Is it any wonder these high-salary companies drive the most economic growth?
With the world’s brightest scratching at the door to work there, Apple enters new markets and tends to do very well. The Apple Watch has quietly turned into a $20bn revenue stream. The firm now owns 22% of the global smartwatch market share.
We’ve seen the same story play out with tablets, phones, music players and more. Apple brings out a new product and it sells like mad.
Too pricey?
The February release of the Apple Vision Pro might bring another hit product. Will virtual reality take off? Who knows? But Apple has the resources and know-how to be at the heart of that or any other technological revolution.
An expensive valuation might be a dealbreaker for some. Even after a recent $14 drop, Apple trades at just over 30 times earnings. That might deter bargain hunters.
On the other hand, Apple has been called expensive for years yet it continues to deliver outstanding returns. If I’d bought £10,000 in Apple shares even five years ago, I’d now have £47,416.
There’s no guarantee US tech firms will continue their dominance, but it’s a brave soul who bets against them or Apple. I won’t be one. I own the stock already and would possibly buy more if I had the spare cash.
