Good news from Apple (AAPL) is being overlooked

Good news from Apple (AAPL) is being overlooked

meIt’s been a good week in tech: There were disappointing results from Alphabet (GOOG: GOOGLE), goal (GOAL), and Microsoft (MSFT) that led to double-digit losses in those shares. Elon Musk finally completed the purchase of Twitter (TWTR), with the immediate dismissal of several senior executives. Then, after yesterday’s close, Amazon (AMZN) beat on the bottom line but lost revenue and, more importantly, issued much weaker-than-expected fourth-quarter guidance and its shares fell close to fifteen percent. AMZN has made up some ground this morning, but as I write this ahead of the open it still looks likely to open about twelve percent lower than it closed yesterday.

That’s a lot of headline material, so it’s no big surprise that Apple (AAPL), which were more or less in line with expectations and contained no flashy or spectacularly disappointing guidance, went relatively unnoticed. However, in the context of what’s happening everywhere, the solid-looking Q3 that came out of Cupertino can be seen as extremely good.

I know naysayers are focusing on iPhone sales that were a bit light, but is it really a surprise when the quarter included only a few days of sales of the iPhone 14, one of the most anticipated upgrades Apple has ever offered for a weather? Not really, especially since the release of the new model was restricted by supply issues. The fact that, despite those challenges, they reported gains on both the top and bottom lines is indicative of something important that the market seems to be missing right now: Apple is no longer a one-trick pony.

The growing importance of revenue and profit in the high-margin services business allows them to smooth out the iPhone sales cycle as new models are anticipated and released and in light of that there is one thing mentioned by Tim Cook in the call of the analyst that has more importance than many analysts seem to admit. That’s a rise in the number of what’s known as “switchers,” people who switch from Android devices to Apple devices.

Attracting new people to the Apple ecosystem means higher recurring and high-margin revenue in the future. Consumers can be fickle, so I guess they could switch back, but one of the things Apple has been better at over the years is retaining those customers once they make the switch, so it’s only fair assume that more iPhone users will equate to more service revenue for a while. Given that, the good quarter in terms of Mac sales is also a positive on this earnings release if we assume that some of them are new to the Apple ecosystem.

And yet, the market was noticeably disappointed despite big drops in the two days leading up to the launch:

AAPL chart

One can only assume that the weakness was related to Big Tech’s bad quarters and the accompanying stock slump, but that doesn’t make much sense either, for a couple of reasons.

First, as I have pointed out many times in the past, Apple is no longer a technology company. They are more like the modern day equivalent of Westinghouse or Maytag, a vendor of “appliances” that we all feel we need to have just to function normally. Second, at least some of the weakness at large-cap tech companies like META and GOOG was due to Apple itself, which implemented new privacy policies that weakened the data collection side of these other businesses. There is no point in punishing Apple’s stock for its weakness in the technology companies to which they themselves contributed.

The sympathy drop in AAPL this week already seemed like a buying opportunity for those reasons. Now that they’ve reported gains in both revenue and EPS, even in the face of a major forex headwind that presumably won’t last forever, and stocks have barely reacted, it looks even more like one.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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