After mixed Q2, what awaits Apple (AAPL) in the second half?

Apple’s (NASDAQ: AAPL) stock rallied this week after the gadget giant reported stronger-than-expected Q2 results and announced the largest-ever share buyback program. The company is investing heavily in the business, with a focus on product launches and enhancing its AI capabilities.

It seems the decline in second-quarter numbers did not dishearten the market — marked by a 10% fall in iPhone sales — but rather investors were focused on the company’s healthy profit margins and expanded share buyback program. The stock gained about 7% in after-hours trading following the announcement. It had maintained a downtrend since pulling back from the December peak. AAPL has gained about 10% in the past 30 days.

Highlights

The tech titan authorized an impressive share repurchase of $110 billion, sharply higher than the buyback announced last year. Revenues totaled $90.8 billion in the March quarter, down 4% compared to $94.84 billion in the same period of 2023. Sales declined across all geographical segments except Europe but came in slightly above analysts’ estimates. Q2 profit was $23.64 billion or $1.53 per share, compared to $24.16 billion or $1.52 per share in the year-ago period. Earnings exceeded Wall Street’s estimates, marking the fifth quarterly beat in a row.

Sales Performance

Sales of the iPhone, the company’s main revenue source, decreased about 10% from last year to $46 billion. That was partially offset by a 14% increase in Services revenues — the top-performing business division in the recent past. Reflecting the continued weakness in demand, sales of iPad and Wearables declined 17% and 10%, respectively, during the quarter.

In the year-ago quarter, revenues received a major boost from iPhone sales realized then after being delayed during the pandemic due to supply chain issues, which makes the comparison difficult. Meanwhile, Apple’s active installed base of gadgets crossed 2.2 billion, setting a new record. While sluggish sales in China remain a concern, the company’s leadership is encouraged by the recent sales growth in certain markets in that country where the iPhone remains among the top-selling smartphones.

Apple’s CEO Tim Cook said at the Q2 earnings call, “We continue to feel very bullish about our opportunity in Generative AI. We are making significant investments, and we’re looking forward to sharing some very exciting things with our customers soon. We believe in the transformative power and promise of AI, and we believe we have advantages that will differentiate us in this new era, including Apple’s unique combination of seamless hardware, software, and services integration, groundbreaking Apple silicon, with our industry-leading neural engines and our unwavering focus on privacy, which underpins everything we create.”

Outlook

Anticipating a positive shift in customer demand for iPad, the management expects sales of the gadget to grow in double-digits this quarter and the services segment to witness strong growth that is in line with the performance seen in the first half. Apple recently launched Vision Pro, a futuristic mixed-reality headset combining augmented and virtual reality. The company expects the market’s positive response to the new gadget will translate into revenues in the coming quarters.

On Friday, Apple’s shares stayed close to where they were at the beginning of the year. The stock traded up 7% in the afternoon, extending the post-earnings momentum.