June 13, 2024

Apple Stock Is Resilient Despite Weak Guidance as Investors Refocus on AI

The biggest bombshell in


December quarter earnings report came on the company’s conference call, when CFO Luca Maestri provided a hugely disappointing forecast for the March quarter.

Management’s guidance, implying overall quarterly revenue will fall 5% from a year earlier to about $90 billion, with a drop of nearly 10% in iPhone sales, sent the stock down as much as 3.5% in after-hours trading. Shares opened Friday slightly below $180, the lowest level in nearly three months.

But Apple shares have since staged an impressive turnaround, briefly moving into the green.They were trading just a touch in negative territory some 40 minutes before the close.

Wall Street seems to have adopted a view of the quarter laid out by Morgan Stanley analyst Erik Woodring, who described the ugly forecast as a “clearing event” that will allow investors to refocus on the company’s June Worldwide Developers Conference. That is when he thinks Apple will finally disclose how it intends to lever generative artificial intelligence software.

Woodring and other analysts think Apple could unveil a new AI-powered version of its Siri chatbot software. He also says the company could deliver a redesigned version of iOS, its operating system software for iPhones and iPads.

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Finally, he said, large language models running locally should help accelerate the iPhone replacement cycle. There could be more news on that front when Apple unveils iPhone 16, likely in September.

CEO Tim Cook said on Thursday’s earnings conference call that the company is spending “a tremendous amount of time and effort” on AI. “We’re excited to share the details of our ongoing work in that space later this year,” he said. While the company has “neural engines” in the processors for the iPhone and Mac, Apple has so far given few indications of how it might approach AI.

“Bears will continue to argue that fundamentals do not support Apple’s current valuation,” Woodring wrote in a research note. “But sentiment is already negatively skewed.”

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He noted while Apple’s revenue has declined in four of the past five quarters, its price/earnings ratio has been rising. “Negative earnings revisions haven’t had the intended impact bears expected—we’re not sure what breaks the story,” he said.

Write to Eric J. Savitz at eric.savitz@barrons.com

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