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Apple: (AAPL: -0.15%) and: Nvidia: (NVDA: -0.87%) Both were beloved tech stocks that lost their luster over the past year. Apple shares hit an all-time high of $180.96 in January, but have since retreated to $130. Last November, Nvidia stock closed at a record high of $333.41, but is now trading at $160.

Both stocks fell as inflation, rising interest rates and other macro headwinds pushed investors toward more conservative investments. Both companies faced their own unique problems. Apple grappled with slower iPhone sales and supply chain disruptions, while Nvidia struggled with a post-pandemic slowdown in the PC market.

Could any of these disadvantaged tech stocks recover in 2023 and beyond? Let’s review their tailwinds, headwinds and valuations to determine.

Image source: Getty Images.

What happened to Apple?

Apple’s revenue and earnings per share (EPS) rose 33% and 71%, respectively, in fiscal 2021 (which ends in September 2021), after it finally entered the 5G market with its iPhone 12 smartphone family. Its revenue and EPS rose another 8% and 9%, respectively, in fiscal 2022, even after it missed that launch and faced fresh supply chain setbacks.

For the full year, Apple’s iPhone sales rose 7% and Mac sales rose 14% (even as the Windows PC market slumped), while its Wearables, Home and Accessories sales grew are up 7% as it sold more Apple Watches, AirPods. and other peripheral products. Its services revenue also grew 14% as it locked in more than 900 million paid subscribers across its ecosystem. All of those growth drivers offset an 8% decline in iPad sales.

But fiscal 2023 is going to be much messier. Apple’s main contract manufacturer, Foxconn, faced disruption in November as workers at its largest iPhone factory protested COVID-19 restrictions and unpaid bonuses. Apple has already lowered its annual production target for the iPhone 14 Pro and Pro Max from 90 million to 87 million units in light of those challenges, but future complaints could create more unpredictable headwinds for Apple.

However, Apple still ended fiscal 2022 with $169 billion in cash and marketable securities, and it bought back a whopping $550 million in stock over the past decade. That strong liquidity should make Apple an attractive investment as long as rising interest rates continue to weigh on unprofitable companies with weak cash flows. Apple is also expected to unveil a new “mixed reality” headset next year, and that product might just generate a new stream of hardware revenue.

Based on those expectations, analysts expect Apple’s revenue and profit to grow by 3% and 2%, respectively, this year. That growth rate is solid, but at 22 times forward earnings, Apple stock still isn’t cheap.

What happened to Nvidia?

Nvidia controlled 88% of the discrete GPU market in the third quarter of 2022, according to JPR. The remaining 12% were distributed Advanced Micro Devices and: Intel:.

Its revenue and adjusted EPS grew 53% and 73%, respectively, in fiscal 2021 (which ended in January 2021). In fiscal 2022, its revenue grew another 61% as adjusted EPS rose 78%.

Much of that growth was driven by three tailwinds;

  1. Steady sales of PCs during the pandemic as more people worked remotely, took online courses and played more computer games.
  2. Growing interest in cryptocurrency mining with gaming GPUs.
  3. Using more powerful GPUs in data centers to handle complex machine learning and AI tasks.

But in fiscal 2023, analysts expect its revenue to remain flat and EPS to decline by 27%. That slowdown was driven by a post-pandemic slowdown in the PC market, sluggish sales amid COVID-19 lockdowns and tighter gaming restrictions in China, and a slump in the crypto market, all of which offset its robust sales of data center GPUs. The Biden administration’s ban on advanced chip sales to China, which affects high-end data center chips, will deepen that slowdown.

For fiscal 2024, analysts expect Nvidia’s revenue and profit to grow 9% and 32%, respectively, as these markets gradually stabilize. But at 38 times forward earnings, Nvidia stock still looks a little expensive relative to its short-term upside.

But just like Apple, Nvidia still has plenty of cash. It ended its most recent quarter with $2.8 billion in cash and cash equivalents, and it bought back $8.8 billion in stock through the first three quarters of fiscal 2023. That abundant liquidity gives it plenty of room to develop new chips, expand and acquire new markets. smaller companies, although antitrust regulators have killed his proposed $40 billion takeover Softbank‘s Arm Holdings earlier this year.

The clear winner: Apple

Apple faces a near-term slowdown, but its business is much more diversified and less cyclical than Nvidia’s. It also has a lot more cash, its stock is cheaper, and it probably has more options to expand its portfolio of products and services than Nvidia. Therefore, I strongly believe that Apple is a better buy than Nvidia in this challenging tech stock market.

Leo Sun has positions at Apple. The Motley Fool has positions in and recommends positions in Advanced Micro Devices, Apple, Intel, Nvidia and SoftBank Group. The Motley Fool recommends the following options: long January 2023 $57.50 calls on Intel Long January 2025 $45 calls on Intel Long March 2023 $120 calls on Apple Short January 2025 $45 with Intel and March 2023 $130 short calls with Apple. The Motley Fool has a disclosure policy.

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