For Apple stock, it's all about AI and China

While Apple’s historical performance has been undeniable, recent stumbles in iPhone sales and a broader market correction have resulted in investor cautiousness towards Apple (NASDAQ:AAPL) stock. However, two key factors hold the potential to reignite Apple's growth: artificial intelligence (AI) and China.

Apple earnings breakdown

After the close Thursday, Apple reported second-quarter earnings of $1.53 per share, $0.03 better than the analyst estimate of $1.50. Meanwhile, revenue for the quarter came in at $90.8 billion, above the consensus estimate of $90.32 billion.

Furthermore, Apple’s board of directors declared a cash dividend of $0.25 per share, representing an increase of 4%. The dividend is payable on May 16, 2024, to shareholders of record as of the close of business on May 13, 2024. Apple also authorized an additional program to repurchase up to $110 billion of the company’s common stock.

The announcement boosted Apple’s stock price, which is up more than 6% premarket, trading above the $183 mark, its highest level since late February 2024.

For Apple stock, focus is on AI and China

Reacting to Apple’s latest earnings release, analysts at Oppenheimer noted the company’s iPhone position in China and the report signalling a stronger focus on artificial intelligence.

“Investors understandably focused heavily on market dynamics in China in the call,” said Oppenheimer. “However, management presented a key data point that effectively deters bears: iPhone grew in mainland China even before normalizing the $5B supply chain headwind.”

“Apple's newly announced $110B buyback (largest in US history) adds to constructive China commentary and a better-than-feared outlook. Overall, Apple delivered solid results and guidance against a tough macro backdrop,” the firm added.

Wells Fargo said the Apple concerns are overdone and they see AAPL's better-than-feared results and guide as a positive clearing event. The firm noted that the iPhone maker’s AI announcements and China are “what matters most.”

“Apple was repeatedly asked about their AI strategy/monetization plans — no surprise,” stated Wells Fargo. “While Apple did not say anything specific (also no surprise), we think the comment that AI announcements are coming in the 'weeks ahead' could be enough of a positive catalyst.”

Citi analysts said Apple’s CEO sounded bullish on generative AI and highlighted an “incredible” WWDC event next month. The bank maintained its Buy rating on the stock based on AI smartphone demand upside in 2025 and Apple’s gross margin expansion.

Evercore ISI said Apple noted they saw iPhone growth in mainland China. The firm also viewed Apple’s results as better-than-expected, adding that “crucially their commentary was much better than buyside fears.”

“[The stock should work higher from here as compares get easier, catalysts add up and AAPL executes on AI in a more capital efficient manner vs. other tech companies,” said Evercore.

Barclays is still worried about the share loss in China and the regulatory risk for Services. The bank maintained an Underweight rating on the stock. “IP15 has been lackluster and we believe IP16 should be the same,” said the bank.

“We don’t expect IP16 to have significant design changes and any differentiated GenAI applications with the iPhones will likely not launch until 2025 at the earliest.”