Apple shares gain 7% after company announces biggest stock buyback

Apple stocks zoom: Shares of Apple surged by 7 per cent on Friday following the company's announcement of a robust stock buyback plan and optimistic sales forecasts, rejuvenating investor confidence amidst concerns about weakening demand and heightened competition in China.

Apple's late Thursday forecast for fiscal third-quarter sales surpassed Wall Street's expectations, coupled with the approval of an additional $110 billion in share repurchases, marking the largest ever buyback authorisation by a US company, as noted by EPFR analyst Winston Chua.

The substantial increase in Apple's stock added nearly $200 billion to its market capitalisation, elevating it to $2.86 trillion, trailing only behind Microsoft, valued at $3 trillion.

With Apple's stock price on Friday, executing the full buyback authorisation would entail repurchasing nearly 4 per cent of the company's shares. The company's confident sales forecast, particularly with upcoming product updates starting with an iPad event on May 7, reassured investors after a period of sluggish growth that led some to question its status as a premier stock.

Analyst Josh Gilbert from eToro remarked, "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."

The buyback initiative aligns Apple with other tech giants in rewarding investors amidst concerns over rising investments in generative AI, signalling a maturing industry. Danni Hewson, head of financial analysis at AJ Bell, noted, "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."

Despite not experiencing a cost surge like Alphabet and Microsoft due to lesser AI investments, Apple's slow rollout of AI services has drawn investor scrutiny, contributing to a 10 per cent drop in its share price this year. CEO Cook hinted at exciting developments to be shared, sparking anticipation among analysts for AI integrations at the upcoming annual developer conference.

Bernstein analysts anticipate a robust iPhone 16 cycle driven by AI functionality and extended replacement cycles. Subsequently, at least 13 analysts raised their target price on Apple, projecting a median view of $200, 15 per cent higher than the stock's last closing price.

Currently, Apple's stock trades at 25 times its 12-month forward earnings estimates, compared to 30.5 for Microsoft, which overtook Apple as the world's most valuable firm earlier this year, attributed to its AI endeavours.

(With Reuters inputs)