Apple's $110B Buyback Spurs Jump, Arista & Union Pacific Upgraded

Key Takeaway

• Apple announces its largest-ever $110 billion share repurchase plan, driving nearly a 6% premarket stock jump despite a 10% drop in iPhone sales.
• Arista Networks upgraded to buy by Jefferies with a new price target of $320, highlighting its strong position as an AI beneficiary.
• Union Pacific receives an upgrade from Stifel to buy, with a price target of $267, focusing on increased productivity and cost management.

Apple's Strategic Moves

Apple's recent earnings announcement has sparked significant interest among Wall Street analysts, primarily due to its largest-ever share repurchase plan valued at $110 billion. This move comes in the wake of a 10% decline in iPhone sales compared to the same quarter last year, yet Apple shares experienced a nearly 6% jump in premarket trading on Friday. Analysts from major investment banks have shared optimistic views:

• JPMorgan's Samik Chatterjee highlighted the "better-than-feared results" for the March-end quarter and anticipates a strong foundation for FY24, especially with the expected AI smartphone upgrade cycle.
• Morgan Stanley's Erik Woodring noted Apple's guidance for the June quarter surpasses Street expectations, alongside reaching a record in Services revenue and gross margin, and teased upcoming generative AI announcements.
• Goldman Sachs' Michael Ng emphasized the momentum across Apple's key categories and pointed to a "catalyst-rich" near term, including generative AI initiatives and new product launches.

These analyses underscore a robust outlook for Apple, reflecting confidence in its strategic direction and innovation pipeline.

Market Reactions and Upgrades

The market has also reacted positively to other companies, with notable upgrades from analysts:

• Jefferies upgraded Arista Networks to buy from hold, increasing the price target to $320, a 22.2% upside from Thursday's close. Analyst George Notter cited "extraordinary" cloud capital expenditures and Arista's positioning as a "prime AI beneficiary," dismissing previous concerns about competition from Nvidia in the ethernet space.
• Stifel shifted its stance on Union Pacific to buy from hold, raising the price target to $267. Analyst Benjamin Nolan supports this with a "sweating-the-assets" strategy, focusing on increased productivity and higher prices while cutting unnecessary costs. This upgrade offers a glimmer of hope for Union Pacific, which has seen a more than 3% decline in shares in 2024.

These upgrades reflect a broader optimism in the technology and transportation sectors, highlighting the potential for significant returns on investment amid evolving market dynamics.

Challenges and Opportunities

Despite the positive momentum, companies face challenges and opportunities ahead. Apple's strategic emphasis on generative AI and its largest buyback announcement signal a strong push towards innovation and shareholder value. However, the decline in iPhone sales indicates shifting consumer behaviors and market saturation challenges. Similarly, Arista Networks and Union Pacific are navigating through competitive pressures and operational efficiencies to capitalize on market opportunities.

The focus on AI and cloud infrastructure investments underscores a significant trend across industries, aiming to leverage technological advancements for growth and efficiency. These strategic moves are critical in maintaining competitive edges and driving long-term shareholder value amidst rapidly changing market conditions.

Street Views

• Samik Chatterjee, JPMorgan (Bullish on Apple):

  "The confluence of better-than-feared results in relation to F2Q (March-end) revenue and guidance for stronger than expected revenue growth in F3Q (June-end) are setting up a strong launch pad for the company in relation to results in FY24 as focus turns to the impending AI smartphone upgrade cycle in the coming years."

• Erik Woodring, Morgan Stanley (Bullish on Apple):

  "Apple guided to an above-Street June Q, alleviated concerns about China iPhone, reached an all-time Services rev & GM record, authorized its largest incremental buyback in history, & hinted at Gen AI announcements to come in weeks. It’s hard not to be more bullish after that."

• Michael Ng, Goldman Sachs (Bullish on Apple):

  "F2Q24 provides demonstrable momentum across AAPL’s key categories and clears the way to a catalyst-rich NTM including increased clarity in AAPL’s generative AI initiatives (e.g., WWDC), new products (Let Loose event, iPhone launch), and ongoing Services momentum. We believe that the durability of AAPL’s installed base is underappreciated, and AAPL should improve revenue per user by increasing hardware units per iPhone user, Product price/mix, and Services attach & monetization as AAPL invests in its ecosystem."

• George Notter, Jefferies (Bullish on Arista Networks):

  "Now, it feels like the rush to deploy GPU-based infrastructure – including Ethernet-based infrastructure – will be lasting. Moreover, it swamps concerns about spending choppiness or excess inventory among these customers... We’ve been carrying a Hold rating on Arista for a long time – of course, it’s been the wrong call."

• Benjamin Nolan , Stifel (Bullish on Union Pacific):> "We are taking up our pricing assumptions and consequently our OR assumptions which turn drive higher EPS While still not as cheap as we would like there is enough upside justify upgrading"