When Apple (AAPL) reported an impressive second-quarter report, the stock traded near an all-time high. The company posted strong iPhone sales that lifted overall revenue. It also raised its dividend and added a $100 billion stock buyback. Is its use of cash flow to buy shares back at these levels a mistake?
In the second quarter, Apple earned $2.01 a share (adjusted). Revenue jumped by 17% Y/Y to $111.18 billion. iPhone contributed to revenue of $56.99 billion. Additionally, Apple posted Mac revenue ($8.4 billion), Wearables ($7.9 billion), and iPad sales ($6.91 billion). The firm benefited from strong growth in China, where revenue increased by 28% Y/Y to $20.5 billion.
To reward shareholders, the dividend hike and stock buyback of up to $100 billion are welcome. However, tech investors might think this use of cash is a mistake. That view might be incorrect. Apple is not wasting billions of dollars to develop artificial intelligence like its peers. At best, the company might incur $100 billion in capital expenditures, buying AI hardware at a premium, to deliver an AI chatbot that is subpar.
Expect the company to power Apple Intelligence through a third party. Alphabet (GOOG) has Gemini, which gained in popularity compared to ChatGPT. Apple’s Siri would benefit its users if Gemini’s AI enhanced its assistance functionality.
