Apple’s Record Buyback and Sales Growth Forecast Entice Investors, Leading to Stock Surge
Despite a decline in iPhone sales, the tech giant exceeded analysts’ earnings estimates this week, coinciding with the announcement of a buyback program.
Apple shares (AAPL.O) surged by nearly 7% on Friday following the tech giant’s announcement of a record stock buyback plan and its promise of sales growth. These positive developments attracted investors who had previously been hesitant due to concerns over weak demand and increased competition in China.
On Thursday, the company approved an additional $110 billion in share repurchases, marking its largest buyback plan ever. Additionally, Apple’s forecast for third-quarter sales exceeded modest market expectations. If the stock gains hold, the company is projected to add over $170 billion to its market value.
Apple’s optimistic prediction demonstrates confidence in upcoming product updates, starting with an iPad event on May 7, which are expected to drive demand in its hardware business. This comes after several months of sluggish growth that raised doubts among investors about Apple’s status as a must-own stock.
Analysts at investment platform eToro noted that CEO Tim Cook’s reassurances provided relief to investors who had questioned Apple’s ability to deliver top growth. The buyback program aligns Apple with other U.S. tech giants that have been returning cash to investors this earnings season, alleviating concerns about rising investments in generative AI and indicating the industry’s maturity.
Danni Hewson, head of financial analysis at AJ Bell, emphasized that growth stocks like Apple must demonstrate continued growth to satisfy shareholders. When growth slows, buybacks or dividends can help maintain investor confidence. Unlike Alphabet and Microsoft, Apple has not experienced a significant increase in costs due to AI investments. However, the slow rollout of AI services has impacted investor sentiment, contributing to a 10% drop in Apple’s share price this year.
CEO Cook teased “very exciting things” that Apple plans to share, fueling expectations among analysts that the company will announce AI integrations at its upcoming annual developer conference, anticipated to be the largest ever. Analysts from Bernstein predict a strong iPhone 16 cycle driven by AI functionality and extended replacement cycles.
Thirteen analysts have raised their target price on Apple, resulting in a median view of $200, representing a 15% increase from the stock’s last closing price. Apple’s stock currently trades at 25 times its 12-month forward earnings estimates, while Microsoft’s multiple stands at 30.5. Microsoft surpassed Apple earlier this year as the world’s most valuable firm, partly due to its AI efforts.
