Apple (NASDAQ:AAPL) shocked Wall Street when it announced its massive $110 billion buyback plan (the largest of all time) alongside a generous dividend increase and a side of some better-than-expected quarterly results. Shares shot around 6% higher after the big release but pared around 1% in the following week after it was discovered Warren Buffett’s Berkshire Hathaway (NYSE:BRK.B) had sold around 100 million worth of shares, which worked out to 13% of his stake.
Then, on Tuesday, Apple hosted its big iPad event, which featured the all-new M4 chip. Indeed, it’s been a rather eventful past week. But have the circumstances changed for investors looking to bet on the company’s take on the future of generative artificial intelligence (AI)?
In light of the Berkshire sale, the iPad event, the massive buyback, the decent quarter, and more commentary on generative AI features ahead, I’d be inclined to be a net buyer and am staying bullish on AAPL stock, even if Buffett and company plan to lighten up further over the coming months.
A Historic Buyback at an Opportunistic Time
Apple’s massive buyback may give some 110 billion more reasons to be a raging bull on AAPL stock. But with Berkshire Hathaway trimming its massive stake, investors may be quite conflicted about what to do with the Cupertino-based tech titan. Though Berkshire’s share sale may be a concern to some, I find it to be a neutral event that was nothing personal.
Apple CEO Tim Cook was in the audience at the 2024 shareholder meeting and seemed as supportive as ever in the Oracle of Omaha. When asked at Berkshire’s 2024 shareholder meeting, Buffett hinted at taxes as a reason it decided to axe its stake.
Though Buffett has a nose for value, it’s clear AAPL stock is in a bit of a weird spot right now. There is a relative lack of AI firepower (at least that the public is aware of) and a multiple—28.4 times trailing price-to-earnings (P/E) at writing—that seems to be leaning a bit on AI rumors.
Based on the multiple alone, you could say Apple stock is far pricier than it was when Berkshire first picked up shares back in 2016. Back then, AAPL stock sported a P/E ratio in the teens. That said, with a June developer event rumored to be packed with AI, perhaps AAPL stock is still cheap relative to the magnitude of profound innovation on the horizon.
Of course, there’s been no shortage of reports and rumors coming from the iPhone maker. The most intriguing of the rumors lies in a potential AI-powered iPhone that may be in the cards later this year. Call it the iPhone 16 or the ‘aiPhone,’ if you will, but it certainly seems like investors are warming up to the company as it continues spending on AI innovations behind the scenes.
In any case, I view the $110 billion buyback as more than just increasing the value of the shares that remain. As you may know, share buybacks tend to pack the most punch when done at a time of undervaluation. After such a big announcement, I wouldn’t be shocked if Apple saw value in its shares after trailing many Magnificent Seven stocks in recent quarters.
Apple Catalysts on the Horizon Could Power Multiple Expansion
If the June developer event delivers and more AI trickles in going into year’s end, perhaps Apple stock has the catalysts it needs to command a much higher multiple. The latest iPad event showcased a few intriguing AI features in its two popular creative apps: Logic Pro and Final Cut Pro. Such innovations probably flew right under the radar of most who were probably looking for “Siri 2.0” or something of the sort.
With the AI-driven “Sessions Players” in Logic Pro 2 and the almost magical AI-powered editing features of Final Cut Pro, it’s clear Apple is serious about leveraging AI in a way to empower human creativity. Sure, the iPad event wasn’t full of game-changing AI features. However, I do think Apple’s incremental AI additions will help slowly (and steadily) nudge its AI innovations forward.
Apple is likely right to sprinkle AI gradually into new features as they release rather than promising massive specifics about AI. The big payoff for AI is likely to be in a few years rather than just a few months. Given this, Apple seems to be the tortoise that may just win the AI race as the hare falls into a bit of trouble with unpolished AI features that may skate offside in these early stages.
Finally, the M4 chip reveal in the latest iPad Pro models was rather exciting. Apple claims the M4’s Neural Engine is “more powerful than neural processing unit in any AI PC today.” As they roll out into the Mac, likely later this year, with Pro and Max versions to come, the excitement continues. Additionally, the potential for AI features in the next macOS version suggests it will be tough to stop AAPL as it makes its biggest public push into AI to date.
Is AAPL Stock a Buy, According to Analysts?
On TipRanks, AAPL stock comes in as a Moderate Buy. Out of 32 analyst ratings, there are 19 Buys, 12 Holds, and one Sell recommendation. The average AAPL stock price target is $204.39, implying upside potential of 11.85%. Analyst price targets range from a low of $164.00 per share to a high of $250.00 per share.
The Bottom Line
There’s no shortage of AI catalysts on the horizon for Apple. With a massive buyback and Tim Cook hinting at big things to come on the front of generative AI, now seems like a rather bad time for investors to trim their positions.
Though Berkshire has sold a significant stake in Apple, I think the move has more to do with tax purposes (as Buffett hinted) and comforting shareholders, some of whom may be uncomfortable with how sizeable the position has grown relative to other stock holdings in recent years.
After all, trimming one’s Apple stake such that it comprises 40% rather than close to 50% of the public stock portfolio strikes me as being only prudent.
