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Will Apple ETFs Gain Momentum After Announcement of AI Project?

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Apple Inc. (AAPL - Free Report) has decided to cancel its ambitious project to build an electric car, marking the end of a decade-long effort that aimed to revolutionize the automotive industry. The decision was disclosed internally on Feb 27, 2024, surprising the nearly 2,000 employees dedicated to the project, per Bloomberg.

Chief Operating Officer Jeff Williams and Vice President Kevin Lynch informed the team that the project, known as Project Titan, would begin winding down. The decision to cancel the project reflects challenges in the electric vehicle market, including slowing sales growth and competition. Other automakers are pivoting to hybrid vehicles, and Tesla has warned of slower expansion.

Shift to Artificial Intelligence Division

By not entering the automotive manufacturing industry, Apple can further develop its CarPlay software, enhancing integration with vehicle controls and entertainment systems. Focusing on AI aligns with long-term profitability potential. Many employees from the car team will be transitioned to Apple's artificial intelligence division as the space is red-hot and is thriving with expansion plans by various tech giants. Apple’s car project’s employees will now focus on generative AI projects.

Will This Shift from EV to AI Boost Apple Stock and ETFs?

Apple shares rose 23.9% in the past one year, making it the second-lowest performer among the 'Magnificent Seven,' only after another EV giant, Tesla (TSLA), which fell 2.9%. In contrast, the stocks heavily associated with AI hype – Microsoft (up 63.4%), Alphabet (up 55.2%), Nvidia (up 239%), Meta (up 178.4%), Amazon (up 84.2%) – surged much higher than Apple in the past one year. The variance in AI investments probably made this difference in performance.

Hence, with Apple also joining the AI league full-fledged, there is a chance of a rally in Apple shares. Investors should note that generative artificial intelligence is expected to deliver at least $6.1 trillion in incremental value to the global economy annually, according to McKinsey & Company. Artificial intelligence (AI) continues to revolutionize the broader industry. About 177 companies within the S&P 500 cited “AI” during their last quarterly earnings call, per the factsheet (read: A New Artificial Intelligence ETF (WISE) Hits the Market).

Relief for Investors

Investors reacted positively to the news, with Apple's stock climbing after the announcement. Apple shares were up 0.8% on Feb 27, and added 0.2% after hours. The decision relieved concerns and signaled a winning strategic shift for the company.

Apple’s Price Target

Based on short-term price targets offered by 26 analysts, the average price target for Apple comes to $207.56. The forecasts range from a low of $158.00 to a high of $250.00. The average price target represents an increase of 14.57% from the last closing price of $181.16.

Currently, Apple has an upbeat growth score of A but the stock lacks value and momentum. We may see an upward price target revision in the near term, to reflect Apple’s latest decision to move to AI.

Broker Rating

The Zacks Rank #3 (Hold) Apple currently has an average brokerage recommendation (ABR) of 1.80 on a scale of 1 to 5 (Strong Buy to Strong Sell), calculated based on the actual recommendations (Buy, Hold, Sell etc.) made by 28 brokerage firms. The current ABR compares to an ABR of 1.80 a month ago based on 28 recommendations.

Of the 28 recommendations deriving the current ABR, 16 are Strong Buy and three are Buy. Strong Buy and Buy respectively account for 57.14% and 10.71% of all recommendations. A month ago, Strong Buy made up 57.14%, while Buy represented 10.71%.

Are ETFs Better Bets?

Investors intending to play Apple’s AI move but still wary of Apple shares’ slowing momentum may take the ETF route. This is because ETFs helps investors to mitigate one company’s average performance with the other companies’ stellar results. Many of Apple ETFs contain the better AI player Microsoft in their kitty. Hence, the ETF route offers investors a more comprehensive way to leverage the latest AI craze.

Below we highlight a few ETFs with heavy exposure to Apple for investors seeking to bet on the stock with much lower risk.

Vanguard Information Technology ETF (VGT - Free Report) – AAPL occupies the first location with 20.22% weight. The fund has a Zacks Rank #1 (Strong Buy).

Select Sector SPDR Technology ETF (XLK - Free Report) – AAPL holds the second spot with 19.48% weight. The fund has a Zacks Rank #1.

iShares Dow Jones US Technology ETF (IYW - Free Report) – AAPL takes the second spot with 17.49% weight. The fund has a Zacks Rank #1.

Fidelity MSCI Information Technology Index ETF (FTEC - Free Report) – AAPL takes the second spot with 19.31% weight. The fund has a Zacks Rank #1.

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