Apple Stock: China Challenges, AI Teaser and an Ultra-Pricey Headset
The market is busy squawking today about Meta Platforms‘ (NASDAQ:META) upcoming 50-cent-per-share dividend. Evidently, new things are always more buzz-worthy than old things as Apple (NASDAQ:AAPL) has distributed quarterly dividends for decades, and its forward annual dividend yield is greater than Meta’s will be.
That said, I can’t deny that Meta’s blowout quarter was more eye-catching than Apple’s Q1 FY2024 results. Yet, Apple’s quarterly results and guidance aren’t the only notable developments. The iPhone maker also released a virtual reality (VR) headset, and CEO Tim Cook teased the upcoming release of generative-artificial-intelligence (AI) product features.
In other words, investors shouldn’t be so distracted by Friday’s 21% single-day surge in META stock that they overlook another important Magnificent Seven member. Perhaps if Apple can overcome its challenges, it can provide outstanding value to its shareholders this year.
Apple’s high-ticket headset and AI announcement
Before I get to the main event, which is Apple’s earnings report, I can’t just ignore the company’s other recent developments. Among them is the long-awaited release of the company’s Vision Pro VR headset, which is available in stores today.
I’ve heard this headset described as mixed reality and augmented reality, but there’s no need to split hairs here. What matters is that Cook touted this product as the “most advanced consumer electronics device ever created.”
That’s a heck of a claim, and there’s a certain level of corporate confidence that comes with charging $3,499.99 for a headset. However, we’re not talking about a fly-by-night gadget maker here. Apple is an industry bellwether, so maybe people will actually cough up $3,500 for the Vision Pro headset.
The data backs up this idea as Apple reportedly fielded 160,000 to 180,000 Vision Pro pre-orders over the weekend. Another report claims that “[a]round 200 people had lined up ahead of the 8 a.m. launch” to purchase the Vision Pro headset at Apple’s New York City flagship store, “including customers from around the world.” Thus, you’ll just have to wait and see if this pricey piece of equipment turns out to be a bestseller or a flop.
Meanwhile, since Big Tech CEOs are almost required by law to mention AI multiple times during their earnings calls, it’s no surprise that Cook declared that Apple is spending a “tremendous amount of time and effort” on it. Cook also mentioned during Apple’s Q1 2024 conference call that the company continues to “invest in technologies that will shape the future” — including AI, naturally.
Interestingly, Cook teased that Apple is “excited to share the details of our ongoing work in that space later this year.” Could the company be on the cusp of releasing new product features with game-changing gen-AI technology?
Unfortunately, that’s a known unknown for the time being.
Cook stopped short after letting the cat out of the bag, remarking, “Let me just say that I think there’s a huge opportunity for Apple with generative AI and with AI, without getting into many more details or getting out ahead of myself.”
China remains a problem for Apple
Cook declared that Apple’s quarterly revenue growth was in part “fueled by iPhone sales.” That may be the case, but it doesn’t tell the full story.
Certainly, Apple’s iPhone sales in China didn’t “fuel” its quarterly sales growth. In actuality, the company’s in-China sales declined 13% year over year to $20.8 billion.
This helps to explain why AAPL stock fell on a day when technology stocks, led by Meta Platforms, generally moved higher. Still, CFRA analyst Angelo Zino seems optimistic about Apple’s performance in Asia, even if China is a pain point.
“Although China’s softness implies share loss, growth across the rest of Asia, installed base rise, and sustained +10% Services growth are good health indicators,” Zino argued.
The analyst’s Hold rating and $210 price target for Apple stock seem quite reasonable. The company isn’t in serious trouble, but issues in China are likely to preclude the sales hyper-growth that many investors seem to expect nowadays from Big-Tech businesses.
In any event, Apple’s quarterly revenue grew 2% year over year to $119.6 billion, and its adjusted EPS increased 16% year over year to $2.18. That’s decent growth, but it’s nothing to write home about, especially for a Magnificent Seven member.
Thus, it’s mostly a waiting game at this point. Will Apple’s expensive headset sell out or fizzle out? What exactly does Cook have in mind in terms of upcoming AI features for Apple’s products? These mysteries have yet to be solved, so I’m just neutral on AAPL stock until further notice.