Apple earnings help market end week on high note

Apple beats fiscal Q2 consensus for EPS, revenue.
Sales drop 4% YoY, but guidance rises for current quarter.
Largest ever buyback of $110 billion approved by board.
Apple earnings drive broad market indices higher on week.

Apple (AAPL) stock gained nearly 6% on Friday following an earnings update that impressed most analysts. Percentage-wise, Apple stock gained the most in a single session since November 10, 2022.

As the second largest company in the public markets, after Microsoft (MSFT), Apple’s best outing in some time lifted the overall market.

The Dow Jones ended Friday up 1.2%, while the S&P 500 advanced 1.3%. NASDAQ led the pack with a 2% gain.

Apple stock news: The 4% quarter

Apple may have narrowly beaten Wall Street estimates when it released fiscal second-quarter earnings results late Thursday, but investors focused entirely on the mountain of buybacks that CEO Tim Cook offered shareholders.

Cook and team announced that the company will be buying back $110 billion worth of stock from the company valued north of $2.8 trillion. Though the buyback will take some time to be completed, this amounts to nearly 4% of outstanding shares at current prices. It already stands as the largest buyback initiated to date in stock market history.

Apple also said it would raise its paltry dividend by a little over 4% to $0.25 per share.

The iPhone maker earned $1.53 in GAAP earnings per share (EPS) on $90.8 billion in sales during the quarter that comprised January through March of this year. EPS came in 3 cents above the consensus forecast, while revenue surpassed expectations by nearly $200 million. However, sales receded more than 4% YoY.

Wall Street saw this earnings call as the turning point however. Cook said that "low single digit” revenue growth was expected in the current third fiscal quarter that ends in June.

This narrative is positive for Apple as it means that traders are likely to hold onto AAPL stock heading into the Q3 results, especially since June is when Apple is slated to deliver its artificial intelligence (AI) strategy.

Wedbush Securities praised the guidance and kept its $250 price target on AAPL stock.

AI stocks FAQs

What is artificial intelligence?

First and foremost, artificial intelligence is an academic discipline that seeks to recreate the cognitive functions, logical understanding, perceptions and pattern recognition of humans in machines. Often abbreviated as AI, artificial intelligence has a number of sub-fields including artificial neural networks, machine learning or predictive analytics, symbolic reasoning, deep learning, natural language processing, speech recognition, image recognition and expert systems. The end goal of the entire field is the creation of artificial general intelligence or AGI. This means producing a machine that can solve arbitrary problems that it has not been trained to solve.

What are AI applications?

There are a number of different use cases for artificial intelligence. The most well-known of them are generative AI platforms that use training on large language models (LLMs) to answer text-based queries. These include ChatGPT and Google’s Bard platform. Midjourney is a program that generates original images based on user-created text. Other forms of AI utilize probabilistic techniques to determine a quality or perception of an entity, like Upstart’s lending platform, which uses an AI-enhanced credit rating system to determine credit worthiness of applicants by scouring the internet for data related to their career, wealth profile and relationships. Other types of AI use large databases from scientific studies to generate new ideas for possible pharmaceuticals to be tested in laboratories. YouTube, Spotify, Facebook and other content aggregators use AI applications to suggest personalized content to users by collecting and organizing data on their viewing habits.

What are some stocks that fit into the AI field?

Nvidia (NVDA) is a semiconductor company that builds both the AI-focused computer chips and some of the platforms that AI engineers use to build their applications. Many proponents view Nvidia as the pick-and-shovel play for the AI revolution since it builds the tools needed to carry out further applications of artificial intelligence. Palantir Technologies (PLTR) is a “big data” analytics company. It has large contracts with the US intelligence community, which uses its Gotham platform to sift through data and determine intelligence leads and inform on pattern recognition. Its Foundry product is used by major corporations to track employee and customer data for use in predictive analytics and discovering anomalies. Microsoft (MSFT) has a large stake in ChatGPT creator OpenAI, the latter of which has not gone public. Microsoft has integrated OpenAI’s technology with its Bing search engine.

Could artificial intelligence generate another stock bubble?

Following the introduction of ChatGPT to the general public in late 2022, many stocks associated with AI began to rally. Nvidia for instance advanced well over 200% in the six months following the release. Immediately, pundits on Wall Street began to wonder whether the market was being consumed by another tech bubble. Famous investor Stanley Druckenmiller, who has held major investments in both Palantir and Nvidia, said that bubbles never last just six months. He said that if the excitement over AI did become a bubble, then the extreme valuations would last at least two and a half years or long like the DotCom bubble in the late 1990s. At the midpoint of 2023, the best guess is that the market is not in a bubble, at least for now. Yes, Nvidia traded at 27 times forward sales at that time, but analysts were predicting extremely high revenue growth for years to come. At the height of the DotCom bubble, the NASDAQ 100 traded for 60 times earnings, but in mid-2023 the index traded at 25 times earnings.

Apple stock forecast

Apple stock leapt well above the moving averages on Friday. With the 20-day, 50-day and 100-day Exponential Moving Averages (EMAs) structured with the shorter duration on the bottom, AAPL stock had been in a short-term downtrend since at least late February.

Now that all might change. Expect bulls to push up Apple stock at least to the $196 level, where investors discovered resistance back in January. Above here lies the all-time high of $199.62 from December 14, 2023.

Support remains at $179, $176 and $164.

AAPL daily stock chart

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