Apple Shares Surge 12% on AI Buzz, Eyes Growth Despite Q2 Dip

Apple's shares surge nearly 12% on AI optimism and record stock buyback, offsetting early losses and fueling growth expectations.

By Bill Bullington

5/16, 10:00 EDT
Apple Inc.
Alphabet Inc.

Key Takeaway

  • Apple Inc. shares surged nearly 12% amid AI optimism and the announcement of the largest stock buyback in U.S. history.
  • Rumored partnerships with OpenAI and Alphabet for AI integration into iPhones fuel investor excitement ahead of June's Worldwide Developers Conference.
  • Despite a 4% revenue decline in Q2, Apple projects a return to growth with sales expected to increase by a low single-digit percentage, maintaining high investor interest.

Apple's Stock Rally

After a period of underperformance, Apple Inc. has seen its shares climb nearly 12% following a robust earnings report and the announcement of the largest stock buyback in U.S. history. This resurgence is partly fueled by growing anticipation around Apple's artificial intelligence (AI) initiatives. Despite a challenging start to the year, with shares down by as much as 14%, the recent gains have nearly offset those losses. The stock's upward trajectory continued with a 0.5% increase on Thursday, marking its fourth consecutive day of gains. This rally was further bolstered by a Bloomberg report suggesting Apple is nearing a deal with OpenAI to integrate ChatGPT features into the iPhone's operating system, sparking investor excitement.

AI Integration and Partnerships

Apple's potential partnership with OpenAI, although not yet confirmed, has generated significant interest. The company is also reportedly in discussions with Alphabet Inc. to incorporate Google’s Gemini AI engine into the iPhone. These talks highlight Apple's strategic approach to AI, leveraging external advancements rather than building from scratch. The anticipation builds towards Apple's Worldwide Developers Conference on June 10, where the company is expected to unveil major software updates and its AI strategy. This move comes as Apple seeks to rejuvenate its product lineup and services, amidst concerns over stagnating revenue growth and challenges in key markets like China.

Financial Performance and Outlook

Apple's fiscal second-quarter results revealed a 4% decline in revenue, marking the fifth contraction in six quarters. However, the company has projected a return to growth, with sales expected to increase by a low single-digit percentage. This forecast has injected optimism among investors, despite Apple's valuation remaining high at 27 times estimated earnings. The potential for AI to drive an upgrade cycle and enhance profitability is a focal point for analysts and investors alike. Yet, the effectiveness of AI in driving long-term revenue and profit growth remains a subject of debate.

Street Views

  • Ken Mahoney, Mahoney Asset Management (Bullish on Apple):

    "AI will result in Siri on steroids... I think AI will produce a huge upgrade cycle, one of the biggest it has seen in some time."

  • Ryan Gorman, Independent Analyst (Neutral on Apple):

    "If Apple can’t recapture growth, then it is probably a bit expensive. A deal with either OpenAI or Alphabet would show that Apple is taking AI seriously. AI is 'a feature you have to have to remain relevant, but does it really drive profits and revenue going forward? That remains to be seen.'"