Apple's $110 Billion Stock Buyback and Quarterly Results Analysis

Lackluster second quarter

The most recent quarterly results featured a 4% decline in sales to $90.8 billion. Product sales were down nearly 10% to $66.9 billion as a segment, with iPhone revenue falling 10% to $46 billion, and iPad sales plunging 17% to $5.6 billion. Wearable and home devices saw a decline of 10% to $7.9 million despite the launch of its newest product, the Vision Pro headset. Mac revenue rose 4% to $7.5 million. Services was a bright spot, with revenue from this segment climbing 14% to $23.9 billion. The company highlighted strong results from Apple TV+ and Apple Sports. China remained a trouble spot, with overall sales down 8% to $16.4 billion. But the company said iPhone sales in that country did increase. There were worries that the iPhone has been losing market share in China to local rivals such as Huawei, which has led to discounts there, so this was good news. Apple sees better days ahead, guiding for third-quarter sales to rise by low single digits despite currency headwinds. It is looking for services revenue to grow at a similar double-digit rate as in the first half of the year, and for iPad sales to rebound and grow by double digits.

Historic buyback plan

The second-quarter results did little to excite investors, but the announcement of a $110 billion repurchase plan was met with enthusiasm. It is the company's largest buyback authorization in history, topping a previous $100 billion buyback in 2018. Apple has already been repurchasing its stock, including $23.5 billion worth in the second quarter. So if it completes its repurchase program over the next year, it will quicken its pace to about $27.5 billion in buybacks per quarter, a 17% increase over its current rate. As for whether Apple is buying its stock at an attractive price, the answer leans toward no. Given Apple's high valuation multiples compared to before COVID, now might not be the best time to be aggressively buying back its shares.

AI investment potential

As for whether management has another good option for that cash, artificial intelligence (AI) is looking to be a generational opportunity to invest in. Apple has said that its smartwatches have AI features and that it has the best consumer laptop for AI. But the company hasn't seen much tangible benefit from AI compared to other large tech companies, nor has it indicated an increase in capital expenditures to help capture this opportunity. It also seems content to partner with other companies to use their AI technology when it introduces its next mobile operating system. There are reports that the company has been in talks with OpenAI and Alphabet's Google about using their AI chatbot technology. Given the stock's current valuation and its apparent lagging in AI, there are better opportunities for investors in the tech space at the moment.