May 3 (Reuters) – Apple shares (AAPL.O) surged 7% on Friday as the company’s record share buyback plan and promises of sales growth enticed back investors who had avoided the stock amid concerns over weak demand and increasing competition in China.
The company on Thursday evening forecasted third fiscal quarter sales that surpassed modest Wall Street expectations. The company also approved an additional $110 billion in share repurchases, the largest buyback authorization ever made by a US company, according to EPFR analyst Winston Chua. Friday’s stock surge added nearly $200 billion to Apple’s market capitalization, lifting it to $2.86 trillion, trailing only Microsoft (MSFT.O), valued at $3 trillion. At Friday’s stock price, executing Apple’s full buyback authorization would mean repurchasing nearly 4% of the company’s shares. Apple’s forecast indicates the company is confident that product refreshes, starting with the iPad event on May 7, will drive demand in its hardware business after several months of sluggish growth that made some investors doubt its status as a must-have stock.
“Many investors have begun to wonder whether Apple still has what it takes to deliver the top-line growth they’ve experienced for years, but CEO Tim Cook has displayed charm and provided reassurance to investors,” said Josh Gilbert, an analyst at investment platform eToro. The buyback aligns Apple with other US tech giants that have inundated investors with cash in recent earnings seasons to soothe concerns about escalating investments in generative AI. Some analysts also see it as a sign that the industry is maturing. “Growth stocks need to demonstrate they’re still growing at a pace that satisfies their shareholders. Once that growth slows down, and Apple is a prime example, then buybacks or dividends can reassure investors to stay the course,” said Danni Hewson, head of financial analysis at AJ Bell. Unlike Alphabet and Microsoft (MSFT.O),
Apple hasn’t incurred steep costs as it hasn’t made large investments in AI yet. But the slow rollout of AI services has been punished by investors, partially triggering a 10% decline in its stock price this year. CEO Cook said Apple plans to share “some really exciting things,” bolstering hopes among some analysts that Apple will announce AI integration at the upcoming annual developer conference, expected to be the largest ever. Bernstein analysts said they expect a “strong iPhone 16 cycle driven by AI functionality as well as an extended replacement cycle.
” At least 13 analysts raised their price targets on Apple, pushing the median view to $200, which is 15% higher than its last closing stock price. Apple shares recently traded at 25 times estimated earnings for the next 12 months, compared to 30.5 for Microsoft. The Windows maker wrested the crown as the world’s largest company from Apple earlier this year, thanks to its efforts in AI.
