Shares of iPhone maker Apple (AAPL) knocked one out of the ballpark when it unveiled its earnings on January 27. Indeed, the tech sector has been under considerable pressure year-to-date, and this quarter could mark the end of the pain for the tech titan.
While tech and growth have both soured of late, it’s clear that investors still value profitability. The names that have taken most of the damage are companies with either high multiples or meager profitability prospects. Real earnings and cash flows matter more than ever with rates headed higher. While growth could take a hit, it’s profitable companies that may be dealt a free pass.
In the case of Apple, which is generating colossal amounts of cash, the company may actually be able to stand under its own power without the help of strength in the broader markets. After delivering a better-than-expected result on a pretty high bar going into its earnings, count me as unsurprised if Apple is able to keep lifting up the Nasdaq 100 from one of the worst plunges since 2020.
Apple Stock: Incredible Numbers; Record Revenue
Apple stock has rallied significantly following its big Q1 release. First-quarter earnings surged above $34 billion, while revenue surged to $123.95 billion, up around 11% year over year. CEO Tim Cook gave positive signs that COVID-19-induced supply chain conditions were showing signs of improvement.
On the hardware front, strength was prominent across the board, with the exception of the iPad. Indeed, comparables were tough, but the company did a respectable job, especially in the Mac and services categories, which experienced 24% and 25% in year-over-year growth, respectively.
Aided by the incredible value proposition of its Apple One services bundle and the powerful Apple Silicon chips in the latest Macs, the company looks well-worth a premium price tag, like the goods it sells.
Apple to Square Off in Payments?
It wasn’t just the solid numbers or record revenues that have me bullish on AAPL stock. The company is also poised to disrupt the Square payments business of Block (SQ) with its incredibly innovative NFC payment system. Come a future update, retailers won’t need external hardware to accept credit card payments anymore.
Could that spell obsolescence for Square’s payments business?
It could. Apple acquired Mobeewave, a mobile payments startup, back in 2020. The deal had largely gone unnoticed. With the inclusions of such technologies in coming iOS or iPadOS updates, I would be horrified if I were an investor in Block (SQ), formerly Square. Indeed, the news of Apple’s Mobeewave acquisition had me scratch SQ stock off my watchlist alone.
Fintech is an incredibly fast-moving market sub-sector. Don’t think for a second that Apple is not ready to make a bigger move into the field, with technologies that go above and beyond just wallet, Apple Card, or Apple Cash. With a deep dive into payments, it will be interesting to see how Apple is able to square off against rivals. Whether Apple dips a toe into the crypto waters remains to be seen.
The Next Step for Apple: Crypto or Bitcoin?
The field may be too nascent for Apple at this point. Indeed, Apple may wait for others to see if there are economic profits to be had in the space before getting in. With volatility hitting crypto markets and one of Apple’s largest shareholders, Warren Buffett, who absolutely hates Bitcoin, I’d argue Apple’s unlikely to get into the crypto space anytime soon.
For now, I expect Apple will only pursue efforts that provide a less risky way to enhance its ROIC numbers.
Wall Street’s Take
Turning to Wall Street, AAPL stock comes in as a Strong Buy. Out of 29 analyst ratings, there are 24 Buys and five Hold recommendations.
The average Apple price target is $192.18, implying an upside of 10%. Analyst price targets range from a low of $161 per share to a high of $215.00 per share.
The Bottom Line on Apple Stock
What a quarter for Apple. It really deserves a round of applause after pole-vaulting over a high bar. With incredible growth, easing supply chain woes, and new innovations on the way, the stock still seems too cheap after getting knocked down in this latest tech pullback.
Whether Apple can lead big tech out of this correction remains to be seen. In any case, AAPL stock is the real deal, with real earnings—precisely what investors want to see in a market that’s no longer impressed by just sales growth.
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