Tech

AlphaOne's Dan Niles says he's 'glad he got out' of Apple despite earnings beat

Share
Key Points
  • Apple beat expectations on the top and bottom line for its fiscal first quarter results.
  • The tech giant did have weaker than expected revenue from its services segment, however.
  • Dan Niles said he may consider shorting the stock if it continues to rise. 
VIDEO3:4803:48
Dan Niles on Apple's Q1 2020 earnings

Hedge fund manager Dan Miles told CNBC on Tuesday that Apple's stock is overvalued, as the company's better-than-expected earnings results were powered mostly by iPhone sales.

Niles, the founding partner of AlphaOne Capital Partners, said on CNBC's "Closing Bell" said the company's results in its services and other products segments didn't support the stock price.

"I'm glad I got out, when I saw the numbers ... all the beat is from iPhones," Niles said.

The tech giant reported $4.99 in earnings per share and $91.82 billion in revenue for its second quarter. Analysts expected $4.55 in earnings per share and $88.50 in revenue, according to Refinitiv. Sales of iPhones generated $55.96 billion in revenue for the quarter, topping expectations of $51.62 billion, according to Refinitiv.

Shares rose more than 2% in extended trading, continuing a huge run for a stock that has more than doubled in the past year.

Apple did see soft results in its services segment, posting $12.7 billion in revenue against an estimate of $13.07 billion, according to Refinitiv. Analysts often cite services and wearables as reasons to be bullish on the company, as those segments are seen as potentially more profitable than iPhone sales and as a way to improve sales growth.

"People have sort of convinced themselves, 'well, this is a services company, and therefore the growth is more predictable,'" Niles said. "They missed their services revenue by $300 million."

Tom Forte of D.A. Davidson said earlier on the show that the upcoming 5G iPhone could continue to drive the stock higher this year.

"The iPhone 11 really benefited from low expectations, but if you look at the setup for calendar (year) '20, with next generation wireless network, I think Apple's got more gas left in the tank for the stock," Forte said.

Niles, who said he would consider shorting the stock if it continued to climb, also said he didn't buy into the idea that the upcoming 5G iPhone would result in a "supercycle" for Apple. However, he said the potential for an augmented reality app could make the new phone more valuable for consumers and be a boon for Apple.

"That could be the thing that really kicks it in, because Apple's going to be on the forefront of that," Niles said. "And if that works, that's going to be a big driver."