Apple shares rose in early trading on May 3 and look set to erase most of their declines so far this year, after the tech giant's strong earnings report eased concerns about slowing demand. in China and leaned heavily into its plans to adopt artificial intelligence 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 quarterly earnings report, which included record services revenue of nearly $24 billion, which to some extent offset another drop in iPhone sales. .
Apple's overall revenue for the three months ended in March fell 4.3% from the same period a year earlier to $90.8 billion, but the figure beat Wall Street forecasts and included a smaller-than-expected drop in earnings. general sales in China.
The group also revealed a record share buyback worth $110 billion, equivalent to around 4% of its outstanding float, and increased its dividend by 4% to 25 cents per share.
Perhaps most importantly, CEO Tim Cook outlined a broad framework for the group's ai ambitions over the next year during his call with analysts and investors last night. Cook also hinted at a series of announcements from the group's Worldwide Developers Conference on June 10.
“We continue to feel very optimistic about our opportunity in generative ai,” Cook said. “We are making significant investments and look 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 drive innovation, we continue to carefully and deliberately manage through an uneven macroeconomic environment and remain focused on putting our users at the center of everything we do.”
Morgan Stanley: “It's hard not to be more optimistic” about Apple
Luca Maestri, Apple's chief financial officer, also calmed concerns that the company's ai investment campaign would result in a big change to capital spending plans. He noted that his “hybrid” model allows him to share some of the costs with suppliers and partners.
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Apple's better-than-expected bottom line of $1.53 per share, as well as its operating cash flow of $22.7 billion and improved gross profit margin of 46.6%, also contributed to the bullish reaction. of the market after hours.
“Apple headed for a better-than-street June quarter, eased concerns about iPhone (demand) in China, hit an all-time record for services revenue and gross margin, authorized its largest incremental buyback in history and hinted (generative ai) announcements are due in weeks,” said Morgan Stanley analyst Erik Woodring.
“It's hard not to be more optimistic after that,” added Woodring, who raised his Apple price target by $6 to $216 per share and affirmed an overweight rating on the stock.
Meanwhile, Evercore ISI analyst Amit Daryanani said Cook's tone on last night's post-earnings analyst call was key to the market's bullish reaction.
He said Apple appears capable of “delivering ai benefits without the ai (capex) we see elsewhere.” He maintained an outperform rating and a $220 price target, according to TheFly.
CFRA's Zino: Apple report “seems to change the narrative”
JP Morgan analyst Samik Chatterjee raised his price target on Apple by $15 to $225 per share following last night's earnings, while maintaining his overweight rating. The analyst cited the tech giant's “better than feared” results and the iPhone's resilient revenue guidance.
iPhone revenue fell 10% from a year earlier to $46 billion, just above Wall Street forecasts. But the figure would have been largely stable from the year-earlier period had it not been for outsized sales increases linked to Covid supply chain disruptions.
Overall sales in China fell 8.1% from last year to $16.37 billion, but that rate of decline improved from the 12.9% decline recorded during the three months ended in December.
Cook also told investors that iPhone sales in China were reportedly actually higher than the previous year, adding that he “maintains a strong long-term view of China.”
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“I don't know how it goes every quarter and every week. But long-term, I have a very positive outlook,” Cook said.
CFRA analyst Angelo Zino, who affirmed a buy rating and $210 price target on the stock after the upgrade, also highlighted the improving data from China.
“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 number of upcoming events/catalysts on the horizon that could improve investor confidence and boost earnings estimates. higher consensus,” Zino said. .
Wedbush's Ives: iPhone demand is 'turning the corner' in China
Wedbush analyst Dan Ives, a longtime Apple bull, agrees.
“iPhone demand is slowly starting to improve in China along with strong services performance, which continues to be the foundation of Cupertino's growth,” Ives said.
“Our view is betting against Cook and Cupertino in an ai-driven supercycle and the $110 billion buyback is the wrong move for investors as a growth renaissance returns to Apple's story,” he added, maintaining his outperform rating and its $250 price target instead.
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DA Davidson analyst Gil Luria also reiterated his $200 price target and neutral rating on Apple shares, while highlighting mainland China's “better-than-feared performance” and the developing ai story of the cluster.
“We expect Apple to make significant announcements about implementing generative ai across its ecosystem, which we believe can help catalyze a major refresh cycle within product categories like the iPhone,” Luria said.
Apple's installed base of more than 2.2 billion devices worldwide is “growing at a good 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 raised his price target on Apple by $5 to $215 per share and maintained his buy rating.
Apple shares recently rose 6.7% in Friday trading and changed hands at $184.62 each, a move that reduces the stock's decline in 2024 to around 0.55%.
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