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Apple Inc‘s (NASDAQ:AAPL) announcement of its largest-ever $110 billion share buyback has sparked a debate among investors and Redditors.
This move solidifies Apple’s position. The company is now responsible for the top six of the 10 largest share-repurchase announcements ever made in the U.S. The move led to a 6%+ jump in Apple’s stock price. However, some are questioning the wisdom of the buyback at a time when iPhone sales are declining.
In a post on r/ValueInvesting, user cigarettesandwater questioned – why Warren Buffett isn’t criticizing Apple CEO Tim Cook for buying back shares at a high multiple. The user compared Apple’s buyback to Coca-Cola Co‘s (NYSE:KO) actions during the dot-com bubble, which Buffett later admitted was a mistake.
“Why isn’t Buffett calling Cook out for buying back AAPL at 27 multiple?” asked Redditor cigarettesandwater. Adding, “Apple is burning money by buying back its stock at current prices. Buffett didn’t belch when Coca-Cola did this same s**t in the dot com bubble and he later admitted it was the wrong move.”
Responses varied. Some suggested that Buffett might not want to criticize Apple publicly because it could hurt his own investment in the company.
Others argued that stopping the buybacks would signal that Apple’s stock is overpriced and shareholders would demand the company use its cash in other ways.
There were also suggestions that Apple could spend its cash in various ways, such as accelerating vertical integration, expanding content offerings on Apple TV, or becoming a one-stop shop for sports streaming.
One user, CorneredSponge, pointed out that Apple has the lowest research and development (R&D) spend adjusted for revenue compared to other big tech companies. They argued that Apple could do much more with its cash, such as accelerating or incentivizing more software for the Apple Virtual Personal Assistant (AVP) or expanding its financial services offerings.
The debate highlights the complexity of capital allocation decisions for a company like Apple, which generates significant cash flow and faces pressure from shareholders to use it wisely. It also underscores the challenge of balancing short-term shareholder value with long-term strategic investments, especially in a rapidly evolving technology landscape.
As Apple continues to navigate these challenges, investors and analysts will be watching closely to see how the company’s capital allocation strategy evolves and whether it can sustain its growth and innovation in the years to come.
Photo: Shutterstock
