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Forget iPhone: 4 Reasons to Bet on Apple ETFs

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Apple Inc. (AAPL - Free Report) has been an underperformer this year with a flat performance, falling short of other mega-cap technology companies. Investors should note that Roundhill Magnificent Seven ETF (MAGS - Free Report) has jumped 23.6% this year while Apple is up 0.9%.

Apple's lesser exposure to AI within the “Magnificent Seven” group and concerns over the sales growth of iPhone in the key China market are being held responsible for this lackluster performance.

Apple’s Sales Struggle in China

Apple, in fact, faced a huge setback in China's smartphone market during the first quarter of the year, experiencing a 19% decline in shipments, its worst performance since 2020, per Reuters. This decline was due to the direct impact of Huawei's new product launches in the premium segment.

Apple's share in China's smartphone market plunged to 15.7% from 19.7% a year earlier, placing it almost neck-and-neck with Huawei, which saw a remarkable 70% increase in sales. As a result, Apple lost its position as the top smartphone seller in China and slipped to the third place.

Should we look beyond this weakness and dig deeper into other areas of strength?

Apple to Hone in on AI

Apple recently unveiled its latest iPad Pros featuring the all-new M4 processor, which promises enhanced performance across various aspects, including AI capabilities. Apple directly challenged competitors like Intel, AMD and Qualcomm by asserting that the M4's neural engine surpasses any other neural processing unit in AI PCs. This move indicates Apple's ambition to lead in AI technology, particularly in the realm of consumer devices.

Apple’s heavy investment in AI and CEO Tim Cook's increasing mentions of it indicate a strategic focus on the development of the technology. This includes acquiring smaller AI firms and exploring partnerships with industry leaders like OpenAI and Google.

Integration With AI to Drive iPhone Sales?

Analysts anticipate that Apple's advancements in generative AI will drive iPhone sales by introducing compelling new features. As consumers hold onto their devices for longer periods, innovative AI experiences could serve as a significant differentiator between iPhone generations. Moreover, Apple's overall quarterly revenues fell in Q2, but less than what analysts had expected, and Tim Cook expects revenue growth to resume in the current quarter.

Improving Sales Trend in Struggling Sector China

In the last reported quarter, sales in Greater China, Apple's third-largest region, fell by 8% to $16.37 billion. The figure surpassed FactSet analysts’ anticipated sales of $15.25 billion. This performance may alleviate concerns among investors about Apple losing market share to local competitors.

Apple’s Dividend Hike

Apple increased its cash dividend by 4% and authorized an additional program to buy back $110 billion worth of stock. The buyback is the largest in Apple’s history. In 2018, the tech giant authorized $100 billion in share repurchases.

Should You Buy Apple Via ETF Route?

The AAPL stock has gained 8.2% past month and erased losses it recorded at the start of the year. In the past week, the stock has climbed 2.2%. The stock has an upbeat Momentum Score of “B” but the stock lacks on value.

Investors intending to follow the bullish momentum but still wary of slowing sales of Apple may take the ETF route. This is because ETFs help investors mitigate one company’s average performance with the other big tech companies’ stellar presence.

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

Select Sector SPDR Technology ETF (XLK - Free Report) – AAPL holds the second spot with 19.10% weight. The fund has a Zacks Rank #1 (Strong Buy).

Vanguard Information Technology ETF (VGT - Free Report) – AAPL occupies the second location with 16.39% weight. The fund has a Zacks Rank #1.

iShares Dow Jones US Technology ETF (IYW - Free Report) – AAPL takes the second spot with 15.21% weight. The fund has a Zacks Rank #1.


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