Apple Announces Record Buyback: the Company is Running Out of Investing Ideas

9 May 2024

Last week, Apple revealed its largest buyback program in history. Apple plans to repurchase $110 billion worth of its stock.

This is not the first time Apple buys back its own shares. The previous record was set in 2018 when Apple announced a $100 billion buyback. Share buybacks are a part of Apple’s investment strategy. Specific numbers vary from quarter to quarter, but Apple is increasing the size of regular share repurchases over time.

The fiscal second-quarter report indicated that Apple’s revenue declined by 4% year-over-year. The material decrease in product sales served as the key catalyst for the decline. Meanwhile, services revenue increased by 14.35%.

Apple produces boatloads of cash and spends it on buybacks and dividends. The fiscal second-quarter report showed that payments for acquisition of property, plant, and equipment were almost 10 times smaller than repurchases of common stock in the last six months. Why? Apple has no big investment ideas, so it has to buy its own shares.

Boosting investments in its core business, iPhone production, does not make much sense for Apple. There’s almost no room for growth without risking damaging the special status of the product, cheaper competitors are gaining market share, so it’s not surprising to see that Apple’s revenue from product sales is falling. Services, which benefit from Apple’s closed ecosystem, serve as the core of the investment thesis for the company’s stock. Importantly, the growth of services’ revenue does not require investments of the $110 billion magnitude.

Interestingly, Apple is more than twice as big as Bitcoin in terms of market cap. At this point, investors are ready to pay more for a stagnating business with falling revenue than for an asset that represents the future of money. The finance world is conservative. Closing the gap between one of the most popular stocks and the world’s main crypto may take some time, which provides an excellent opportunity to build a crypto position at reasonable prices.