Apple shares powered higher in early trading on May 3, and look set to erase most of their year-to-date declines, after the tech giant's solid earnings report eased concern about slowing demand in China and leaned heavily into its plans to adopt AI technologies.
Apple (AAPL) , which has been one of the weakest Magnificent 7 stocks so far this year, surprised markets with a better-than-expected March quarter earnings report that included record services revenue of nearly $24 billion, which to some degree offset another slump in iPhone sales.
Apple's overall revenue for the three months ended in March fell 4.3% from last year to $90.8 billion, but the tally topped Wall Street forecasts and included a smaller-than-expected decline in overall China sales.
The group also unveiled a record $110 billion share buyback, equivalent to around 4% of its outstanding float, and boosted its dividend by 4% to 25 cents a share.
Perhaps most importantly, CEO Tim Cook sketched a broad framework for the group's AI ambitions over the coming year during his call with analysts and investors last night. Cook also hinted at a series of announcements from the group's World Wide Developers Conference on June 10.
"We continue to feel very bullish about our opportunity in generative AI," Cook said. "We are making significant investments, and we’re looking forward to sharing some very exciting things with our customers soon."
"We believe in the transformative power and promise of AI, and we believe we have advantages that will differentiate us in this new era," he added. "As we push innovation forward, we continue to manage thoughtfully and deliberately through an uneven macroeconomic environment and remain focused on putting our users at the center of everything we do."
Morgan Stanley: 'Hard not to be more bullish' on Apple
Luca Maestri, Apple's chief financial officer, also soothed concerns that the company's AI-investment drive would result in a big change in capital-spending plans. He noted that its "hybrid" model enables it to share some of the costs with suppliers and partners.
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Apple's stronger-than-expected bottom line of $1.53 a share, as well as its operating cash flow of $22.7 billion and an improving gross profit margin of 46.6%, also added to the market's bullish after-hours reaction.
"Apple guided to an above-Street June quarter, alleviated concerns about China iPhone (demand), reached an all-time services revenue and gross-margin record, authorized its largest incremental buyback in history and hinted at [generative-AI] announcements to come in weeks," said Morgan Stanley analyst Erik Woodring.
"It's hard not to be more bullish after that," added Woodring, who lifted his Apple price target by $6 to $216 a share and affirmed an overweight rating on the stock.
Evercore ISI analyst Amit Daryanani, meanwhile, said Cook's tone on the analyst call following last night's earnings was key to the market's bullish reaction.
He said Apple appears able to "deliver AI upside without the AI [capital spending] we see elsewhere." He maintained an outperform rating and $220 price target, according to TheFly.
CFRA's Zino: Apple report 'appears to change narrative'
JP Morgan analyst Samik Chatterjee lifted his Apple price target by $15 to $225 a share following last night's earnings, while keeping his overweight rating in place. The analyst cited the tech giant's "better-than-feared" results and resilient iPhone revenue guidance.
iPhone revenue fell 10% from a year earlier to $46 billion, just ahead of Wall Street forecasts. But the figure would have been largely flat with the year-earlier period but for outsized sales gains tied to covid supply-chain disruptions.
Overall China sales fell 8.1% from last year to $16.37 billion, but that rate of decline improved from the 12.9% slump recorded over the three months ended in December.
Cook also told investors that iPhone sales in China were actually higher than a year earlier on a reported basis, adding that he "maintains a great view of China in the long term."
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"I don’t know how each and every quarter goes and each and every week. But over the long haul, I have a very positive viewpoint," Cook said..
CFRA analyst Angelo Zino, who affirmed a buy rating and $210 price target on the stock following the update, also noted the improving China data.
"We believe these results appear to change the narrative on the Apple story, as China is holding up better than expected and there are a host of upcoming events/catalysts on the horizon that could improve investor sentiment and drive consensus estimates higher," Zino said.
Wedbush's Ives: iPhone demand 'turning corner' in China
Wedbush analyst Dan Ives, a longtime Apple bull, agrees.
"iPhone demand is now starting to slowly turn the corner in China along with a robust services performance, which remains the bedrock of growth for Cupertino," Ives said.
"Our view is betting against Cook and Cupertino into an AI-driven supercycle and $110 billion buyback is the wrong move for investors as the renaissance of growth returns back to the Apple story," he added, keeping his outperform rating and $250 price target in place.
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D.A. Davidson analyst Gil Luria also reiterated his $200 price target and neutral rating on Apple stock, while noting the "better-than-feared performance out of Mainland China" and the group's developing AI story.
"We expect Apple to deliver meaningful announcements surrounding the implementation of generative AI across their ecosystem, which we believe can help catalyze a major upgrade cycle within product categories such as the iPhone," Luria said.
Apple's installed base of more than 2.2 billion global devices is "growing at a nice pace," according to CFO Maestri. That installed base should continue to boost services revenue, which rose 14% from a year earlier to a record $23.9 billion, according to Canaccord Genuity analyst T. Michael Walkley.
Walkley lifted his price target on Apple by $5 to $215 a share and kept his buy rating in place
Apple shares were recently marked 6.6% higher in Friday trading and changing hands at $184.44 each, a move trims the stock's 2024 decline to around 0.6%
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