In the wake of a hybrid work culture, the need for modernized and updated computer hardware has become indispensable for the seamless functioning of enterprises. Moreover, the swift pace of digitalization, coupled with the escalating embrace of advanced technologies, is anticipated to propel the expansion of the industry.

Considering this, I evaluated two fundamentally sound technology hardware stocks, Apple Inc. (AAPL) and Dell Technologies Inc. (DELL), to ascertain which holds the potential to yield superior returns. Let’s understand this in detail.

Tech hardware's pivotal role lies in facilitating optimal software functionality. Robust demand for such hardware is poised to persist in the foreseeable future, propelled by consistent consumer, government, and enterprise capital expenditures, ensuring sustained growth.

The burgeoning embrace of cutting-edge technologies is a prime catalyst for the industry's upward trajectory. The advent of AI and machine learning has notably surged the demand for intricately specialized hardware components.

IoT technology is further bolstering enterprise digital transformation, fueling substantial demand for interconnected hardware such as sensors, processors, and wireless solutions. According to a report by Mordor Intelligence, the IoT devices market is projected to grow at a CAGR of 23.3% and reach $336.64 billion by 2028.

Moreover, as per a report by The Business Research Company, the global computer hardware market is expected to reach $909.80 billion by 2027, growing at a CAGR of 6.6%. The escalating requirement for fortified and energy-efficient computing systems is bolstering the industry’s growth.

As a result, both AAPL and DELL are expected to benefit from the industry’s tailwinds.

AAPL has plunged 7.7% over the past month compared to DELL’s 4.2% gain. Also, AAPL has gained 1.7% over the past three months, compared to DELL’s 17.4% rise during the same period. Moreover, AAPL has gained 5.8% over the past year to close the last trading session at $177.23, while DELL has surged by 19.1% during the same time frame to close the last trading session at $55.80.

But which stock holds the potential to generate better returns? Let’s find out.

Recent Developments

On August 2, AAPL revealed that the Apple Card's high-yield Savings account, facilitated by Goldman Sachs (GS), had amassed over $10 billion in user deposits since its April launch. Of the Savings patrons, 97% opted for seamless auto-deposit of Daily Cash, facilitating the development of robust saving tendencies.

Savings offers a fee-free, no minimum deposit, and no balance requirement platform, simplifying daily savings. The enthusiastic response, encompassing new and existing customers, augurs promising prospects for the company's growth trajectory.

On July 19, DELL unveiled its definitive agreement to acquire Moogsoft, an AI-driven entity specializing in intelligent monitoring solutions pivotal for DevOps and ITOps. The acquisition is expected to fortify DELL's AIOps prowess, aligning with its commitment to infuse AI proficiency across products and integral to its "multicloud by design" blueprint.

Recent Financial Results

For the fiscal third quarter that ended July 1, 2023, AAPL’s total net sales decreased 1.4% year-over-year to $81.80 billion. However, its net income and EPS grew 2.3% and 5% from the prior year’s period to $19.88 billion and $1.26, respectively.

In addition, as of July 1, 2023, the company’s cash and cash equivalents stood at $28.41 billion compared to $23.65 billion as of September 24, 2022.

For the fiscal 2024 first quarter that ended May 5, 2023, DELL’s net revenue from Services increased 4.1% year-over-year to $5.89 billion. Its cash inflow from operating activities came in at $1.78 billion, compared to a cash outflow of $269 million in the prior year’s quarter.

Furthermore, as of May 5, 2023, the company’s cash and cash equivalents stood at $7.63 billion, while current assets amounted to $37.39 billion.

Past And Expected Financial Performance

Over the past three years, AAPL’s revenue increased at a CAGR of 11.9%. In addition, its EBIT grew at a CAGR of 18.7% during the same period.

Analysts expect AAPL’s revenue to increase 6.2% year-over-year to $406.75 billion for the fiscal year ending September 2024. Likewise, the company’s EPS for the next year is expected to rise 8.5% from the prior year to $6.57.

DELL’s revenue increased at a CAGR of 1.8% over the past three years. Moreover, the company’s EBIT rose at a CAGR of 13.4% during the same time frame.

The consensus revenue estimate of $90.91 billion for the fiscal year ending January 2025 reflects a 4.6% year-over-year improvement. Moreover, the consensus EPS estimate of $6.17 for the same period reflects a 10.9% rise year-over-year. Also, the company topped the consensus EPS estimates in all four trailing quarters, which is impressive.

Valuation

In terms of forward non-GAAP PEG, AAPL is currently trading at 2.92x, 151.7% higher than DELL, which is trading at 1.16x. Moreover, AAPL’s forward EV/Sales multiple of 7.09 is 884.7% higher than DELL’s 0.72. Additionally, AAPL’s forward EV/EBITDA of 21.66x is 218.5% higher than DELL’s 6.80x.

Thus, DELL is relatively affordable.

Profitability

AAPL’s trailing-12-month revenue is four times that of what DELL generates. Moreover, AAPL is more profitable, with a trailing-12-month gross profit margin of 43.45%, compared to DELL’s 22.57%.

Additionally, AAPL’s trailing-12-month EBITDA margin and net income margin are 32.29% and 24.68%, respectively, compared to DELL’s EBITDA margin of 8.46% and net income margin of 2.01%.

POWR Ratings

AAPL has an overall rating of C, which equates to Neutral in our proprietary POWR Ratings system. Conversely, DELL has an overall rating of B, translating to Buy. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. AAPL has a D grade for Value, in sync with its higher-than-industry valuation. In terms of forward non-GAAP P/E and forward EV/EBITDA, AAPL is trading at 29.25x and 21.66x, 28.2%, and 44.5% higher than the respective industry averages of 22.81x and 14.99x.

On the other hand, DELL has a B grade for Value, justified by its lower-than-industry valuation. In terms of forward non-GAAP P/E, DELL is trading at 10.02x, 56.1% lower than the industry average of 22.81x. Moreover, its forward EV/EBITDA of 6.80x is 54.7% lower than the 14.99x industry average.

Of the 43 stocks in the Technology – Hardware industry, AAPL is ranked #21, while DELL is ranked #12. 

Beyond what we’ve stated above, we have also rated both stocks for Growth, Momentum, Stability, Sentiment, and Quality. Click here to view AAPL’s ratings. Get all DELL ratings here.

The Winner

Fueled by robust demand and the introduction of pioneering technologies, the technology hardware sector stands on the brink of substantial expansion in the coming years. Sound tech stocks AAPL and DELL are positioned to benefit from the industry's promising growth prospects.

However, considering AAPL's comparatively weaker financial performance and higher valuation, its competitor, DELL, could be a better buy now.

Our research shows that the odds of success increase when one invests in stocks with an overall rating of Strong Buy. View all the top-rated stocks in the Technology – Hardware industry here. 

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AAPL shares were trading at $181.41 per share on Wednesday afternoon, up $4.18 (+2.36%). Year-to-date, AAPL has gained 40.22%, versus a 16.85% rise in the benchmark S&P 500 index during the same period.

Aanchal's passion for financial markets drives her work as an investment analyst and journalist. She earned her bachelor's degree in finance and is pursuing the CFA program. She is proficient at assessing the long-term prospects of stocks with her fundamental analysis skills. Her goal is to help investors build portfolios with sustainable returns.

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