Nasdaq 100 analysis: AAPL stock pops on iPhone sales and earnings beat

Apple delivers surprise lift in iPhone sales

Apple beat expectations in the second quarter of its financial year. Revenue fell 2.5% from the year before to $94.8 billion. Although that was the second consecutive quarter of year-on-year declines, this was much better than the $92.6 billion pencilled-in by Wall Street.

The sales beat was largely down to a 1.5% rise in iPhone sales to $51.3 billion. Analysts had anticipated iPhone sales would fall over 3%, so the result has been embraced by the markets that have been worried about smartphone demand since seeing iPhone sales decline for the first time since 2020 in the first quarter. Conditions have improved in 2023 as supply chain constraints and disruption in China faded away, with CEO Tim Cook stating there were ‘no material shortages at all during the quarter across any of the products’.

Cook said Apple grew iPhone sales after tapping into faster-growing emerging markets. ‘We set records for the iPhone installed base in every geographic segment, and we have very strong ‘new to’ [sales] in emerging markets, particularly in Brazil, India and Mexico,’ Cook said. Analysts also flagged strong sales in other nations including Indonesia, the Philippines and the UAE.

India has been of particular focus after Apple opened its first two company-owned retail stores in the country last month and continued to build its supply chain in the country to wean itself off relying so heavily on China. Cook said ‘India is at a tipping point’ as he hopes to sell to the country’s growing middle class.

That was vital considering sales declined 2.9% year-on-year in China, accompanied by declines in its core and most mature market in North America.

Importantly, that rise in iPhone sales comes at a time when overall smartphone demand is dropping. Global smartphone shipments fell 13% in the first three months of 2023, according to Canalys, with Apple gaining market share and narrowing the gap with market leader Samsung.

The surprise lift in iPhone sales, which account for over half of Apple’s total revenue, was all the more important considering sales of other products remained under pressure, with Mac and iPad demand declining more than expected.

Revenue from its array of services, such as music and TV, continued to grow after rising 5.5% to hit new all-time highs, but this was a soft reading and was just shy of forecasts. Notably, management confirmed that Apple now has around 975 million subscribers, up from around 935 million three months earlier and up some 150 million from a year ago! That sends a strong signal that those buying products are remaining with the Apple ecosystem and utilizing higher-margin services.

Apple earnings beat expectations

Apple also impressed at the bottom-line after managing to keep EPS flat year-on-year at $1.53 in the second quarter, when analysts expected this to fall to around $1.43.

Apple ups dividend and buyback

Apple is paying a dividend of $0.24 per share for the second quarter. That is up 4% and will be paid on May 18 to shareholders on the register at the end of play on May 15. The company also upped its share buyback programme by a whopping $90 billion.

Where next for AAPL stock?

Markets have embraced the better than expected results and sent Apple shares up 2.2% in premarket trade today to $169.50.

That is pushing the stock back toward the eight month high seen earlier this week at $170.90. A close above $170 would signal that new highs are on the horizon. From here, it can then try to target the August 2022 peak at $174.50.

Brokers currently have an average target price of $173 on Apple, implying there is limited upside potential from here. However, the brokers to adjust their view in wake of the results suggest this could edge higher. Jefferies initiated coverage with a Buy rating and a $195 price target. Meanwhile, others raised their targets including DA Davidson to $193, Canaccord Genuity to $185 and Atlantic Equities to $200.

It could find it more difficult to find higher ground considering the falling trendline tracking the peaks over the past year is back in play, further supporting the view that a break above the recent highs could provide a strong bullish signal. We can also see there has been a divergence from the RSI in recent months, with the share price climbing higher while the indicator has fallen.

The supportive trendline that has held steady, apart from a temporary blip yesterday, since early 2023 should provide a safety net if it comes under renewed pressure. The trough of the last leg lower at $162.80 should resurface if that fails to hold.

Apple stock helps push Nasdaq 100 higher

Apple is the second largest component of the tech-heavy Nasdaq 100, making up over 12%, and the rise in its share price is helping push the index higher, with futures rising 0.5% today. If sustained, that would break a three-day losing streak for the index.

That will provide hope the index can climb back toward the eight month closing high of 13,231. That needs to be recaptured to bring the 13,667 peak we saw last August back onto the radar.

We should see 12,734 provide support if the index comes under renewed pressure, with the 50-day moving average there to provide a potential safety net before the supportive trendline that has been in play since January resurfaces. It too has seen divergence with the RSI indicator since the start of February.

Take advantage of extended hours trading

Apple released earnings after markets closed and most traders must wait until they reopen the before being able to trade. But by then, the news has already been digested and the instant reaction in share price has happened in after-hours trading. To react immediately, traders should take their positions in pre-and post-market sessions.

With this in mind, you can take advantage of our service that allows you to trade Apple and other tech stocks using our extended hours offering.

While trading before and after hours creates opportunities for traders, it also creates risk, particularly due to the lower liquidity levels. Find out more about Extended Hours Trading.

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