Apple (AAPL) Stock: After strong Q3, tech giant looks headed for soft second half

The technology sector has been thriving on favorable market conditions for quite some time, with multiple factors contributing to the rally including the acceleration in digital transformation after the virus outbreak and advancements in communication like the 5G rollout.

The Apple Story

The third-quarter earnings release of gadget giant Apple, Inc. (NASDAQ: AAPL) was a closely followed event this week, with investors looking for updates on new offerings as well as the antitrust investigations the company is facing. And, the management’s cautious remarks on the global chip shortage and unfavorable foreign exchange rates took the sheen off the impressive results and dampened investor sentiment.

Read management/analysts’ comments on Apple’s Q3 2021 results

The mixed outcome was reflected in the performance of the stock, which rallied briefly post-earnings but lost momentum pretty quickly. It seems the shares are poised for mixed performance the rest of the year and that calls for caution, given the relatively high valuation.

Short-term Challenges

While emerging opportunities like 5G adoption and Apple’s resilience to macroeconomic headwinds bode well for the company as far as long-term growth is concerned, uncertainties related to the pandemic will continue to weigh on performance. Besides raising concerns about the component shortage, the executives also hinted at the service business slowing down in the coming months. They do expect double-digit revenue growth for the September quarter, but at a slower pace compared to the last quarter. The cautious view has raised fears that Apple is headed for a soft holiday season, which is typically the busiest time of the year for it.

“This quarter saw a growing sense of optimism from consumers in the United States and around the world, driving renewed hope for a better future and for all the innovation can make possible. But as the last 18 months have demonstrated many times before, progress made is not progress guaranteed. An uneven recovery to the pandemic and a delta variance surging in many countries around the world have shown us once again that the road to recovery will be a winding one,” said Apple’s CEO Tim Cook during his post-earnings interaction with analysts.

Blockbuster Q3

In the most recent quarter, the rapidly growing services segment contributed significantly to the top-line, registering record sales of more than $17 billion. There has been a steady increase in installed bases, while the number of paid subscribers crossed 700 million. That, combined with strong sales in China, more than offset the impact of chip shortage and supply chain issues. iPhone, the company’s flagship product, accounted for nearly half of total revenues and remained the main growth driver.

Revenues jumped 36% annually to $81.4 billion in the third quarter and earnings more than doubled to $1.30 per share, with sales growing in double digits across all operating and geographical segments. The results far exceeded the market’s projection in every category including iPhone sales.

At the Bourses

Though the stock recovered from the post-earnings dip, it experienced continued volatility and closed the last session lower but stayed above the long-term average. The shares have gained about 37% since last year, often outperforming the broad market.