Why Apple Inc. Stock Rose 13% in May


What happened

The most valuable company in the world got even more valuable last month. Shares ofApple Inc.(NASDAQ:AAPL) jumped after the iPhone maker turned in a strong second-quarter earnings report and got another vote of confidence from Warren Buffett andBerkshire Hathaway(NYSE:BRK-A) (NYSE:BRK-B).

According to data from S&P Global Market Intelligence, the stock finished the month up 13%.

AAPL Chart


AAPL data by YCharts.

So what

Apple shares rose 4.4% on May 2 after the company turned in impressive earnings results. On the strength of the iPhone X as well as services and wearables, revenue jumped 16% in the quarter to $61.1 billion, edging out analysts’ estimate of $60.9 billion. Performance in China was strong, too, as the iPhone X was the top-selling smartphone. Sales increased 21% in this key market, its fastest growth in nearly three years.

The front and back of an iPhone X


Image source: Apple.

Apple impressed on the bottom line as well. Earnings per share increased 30% to $2.73, ahead of expectations for $2.64, as the company benefited from lower tax rates.

A few days later, on May 4, the stock tacked on another 3.9% after Buffett revealed that Berkshire Hathawayhad bet on the iPhone maker once again. Buffett toldCNBC that Berkshire bought another 75 million shares in Apple, bringing its total to 240 million shares, or nearly $50 billion, making Apple the company’s largest holding. Though Buffett has historically avoided tech stocks, he likes Apple’s strong consumer brand, its fat margins, and its growing services business model, which leverages the installed base to generate revenue streams like App Store payments and Apple Music subscriptions.


Now what

With last month’s surge, Apple is now closing in on a $1 trillion market cap, looking to become the first company ever to cross that milestone. While Buffett’s backing and the strength of the iPhone X are certainly helping it, there are lingering questions about how much bigger Apple can get.

The company has fallen behind in growth areas like voice-activated technology and the smart speaker market, as its new HomePod has mostly been a dud. Still, Apple is an unrivaled profit machine and should continue to deliver at least modest growth with the help of share buybacks. Considering the company has now reached maturity, it’s not surprising to see Buffett piling in.

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