Apple shares surge on record buyback, optimistic sales growth forecast

Before the opening bell on Friday, shares of Apple soared nearly 6 per cent, buoyed by the tech giant's announcement of its largest-ever stock buyback plan and optimistic sales growth projections. The development attracted investors who had previously shied away from the stock due to concerns regarding weak demand and increased competition in China.

Apple's decision to approve an additional $110 billion in share repurchases, coupled with its forecast of third-quarter sales surpassing modest market expectations, ignited investor enthusiasm. The company's stock was set to add $160 billion to its market value if the gains sustained.

The bullish sales forecast signalled Apple's confidence in driving demand for its hardware products through upcoming product updates, commencing with an iPad event scheduled for May 7. This outlook comes after months of sluggish growth, which had led some investors to question Apple's status as a must-own stock.

"Many investors had begun to question if Apple still has what it takes to deliver the top growth they have become accustomed to over the years, but CEO Tim Cook turned on the charm and offered relief to investors," remarked Josh Gilbert, an analyst at investment platform eToro.

Apple's buyback initiative aligns it with other US tech giants, which have been returning capital to shareholders amid concerns about rising investments in generative AI. This move also reflects a maturing industry landscape, according to some analysts.

"Growth stocks must demonstrate they are still growing at a pace that satisfies their shareholders. Once that growth slows, and Apple is a prime example, then buybacks or dividends can persuade investors to keep the faith," explained Danni Hewson, head of financial analysis at AJ Bell.

While Apple has not experienced a surge in costs like Alphabet and Microsoft due to significant AI investments, its slow AI services rollout has led to investor scepticism, contributing to a 10 per cent decline in its share price this year.

CEO Tim Cook's announcement of plans to unveil "some very exciting things" at the upcoming annual developer conference has heightened expectations of AI integrations. Bernstein analysts anticipate a robust iPhone 16 cycle fuelled by AI functionality and elongated replacement cycles.

Thirteen analysts have raised their target price on Apple, with the median view reaching $200, representing a 15 per cent increase from the stock's last closing price.

With Apple's stock trading at 25 times its 12-month forward earnings estimates, compared to 30.5 for Microsoft, the tech giant aims to regain its position as the world's most valuable firm, which it lost earlier this year to Microsoft, bolstered by its AI endeavours.

(With Reuters inputs)