In the second quarter of fiscal year 2024, Apple experienced a decline in sales, particularly in its iPhone, iPad, and wearables categories. Despite a 4% decrease in revenue to $90.8 billion, the company’s earnings remained steady at $1.53 per share, surpassing expectations. Apple also announced its largest share repurchase authorization, leading to a 6% increase in its stock price in extended-hours trading. The challenges faced by Apple’s sales were attributed to a drop in iPhone sales by almost 10% year-over-year, partially due to tough comparisons with the previous year’s quarter and slowing demand in China, where competitors like Huawei are gaining momentum. However, Apple’s Mac business saw a slight improvement with a 4% increase in sales, driven by the launch of new MacBook Air models with upgraded M3 chipsets. Additionally, Apple’s digital services business performed well, reporting over 1 billion active subscriptions and a 14% increase in services sales to $23.9 billion.
AAPL stock has shown significant gains of 35% from early January 2021 to around $175 currently, outperforming the S&P 500 Index over the same period. However, the stock’s performance has been volatile, with returns of 35% in 2021, -26% in 2022, and 49% in 2023, compared to the S&P 500’s returns of 27%, -19%, and 24% in the respective years. This inconsistency in performance raises concerns about AAPL’s ability to beat the market consistently. In contrast, the Trefis High Quality Portfolio, consisting of 30 stocks, has consistently outperformed the S&P 500 each year over the same period, indicating that diversified portfolios may offer more stable returns.
With uncertainties in the macroeconomic environment, including high oil prices and elevated interest rates, the question arises whether Apple will underperform the S&P 500 as it did in 2022 or witness a strong rebound in the next 12 months. Trefis values Apple at around $180 per share, aligning closely with the current market price, and anticipates potential upside from selling premium products and expanding its services. Apple’s presence in the generative AI space could also contribute to its growth, as the company’s on-device implementation of AI while maintaining user data privacy sets it apart from competitors. Furthermore, Apple’s increased stock buyback program, now totaling $110 billion, is expected to support its share price and shareholder returns.
Despite the challenges faced by Apple in Q2 FY’24, the company’s strategic focus on premium products, services, and AI innovation positions it for potential growth in the future. With a solid stock buyback program and a valuation in line with market expectations, Apple remains an attractive investment option for shareholders. While uncertainties in the market may impact Apple’s performance in the short term, the company’s long-term prospects in the technology sector remain promising. Investors may want to consider Apple’s growth potential and strategic initiatives in assessing their investment decisions.
