Apple is set to announce its first-quarter earnings after Thursday’s closing bell, with investors watching closely for insights into its AI trajectory and China market performance.
While the stock has remained stable leading up to earnings, it took a brief hit following the rise of Chinese AI firm DeepSeek before rebounding by 7%.
Iphone demand is still a top concern for investors.
Further, the perception that Apple lags behind rivals like Microsoft and Google in AI development remains a concern, but the company’s financial success has not been solely dependent on generative AI.
Invezz takes a look at factors to look out for in Thursday’s earnings announcement:
Strong revenue expected but China market share a concern
Apple is projected to report a revenue of $124.39 billion (4% YoY growth), with iPhone revenue expected to come at $70.72 billion (2% YoY growth), and earnings per share of $2.35 (up from $2.18 last year)
Apple’s stock price has fallen about 5% year-to-date, largely due to declining smartphone sales in China.
iPhone shipments to China fell 25% during the fourth quarter and 17% throughout 2024, according to data from Canalys which says domestic competitors like Huawei and Vivo have gained market share at Apple’s expense.
JPMorgan analysts have warned that Apple may be past its peak product cycle in China and could continue losing market share.
As a result, the firm recently cut its price target on Apple stock from $265.20 to $260.
Oppenheimer on Wednesday downgraded the stock to Perform from Outperform and also removed its $250 price target on the stock as it pointed to reduced estimates for iPhone sales over the next 12 to 18 months.
“We see a twofold challenge ahead for iPhone growth: 1) stronger competition in greater China and 2) lack of compelling Apple Intelligence and generative Al apps to accelerate near-term device replacement,” said Oppenheimer analysts Martin Young and Andrew Northcutt.
However, Wedbush analysts, who have a far more bullish $325 price target, believe Apple could turn things around with an AI partnership in China, possibly with Baidu, ByteDance, or Tencent.
AI strategy and DeepSeek’s impact
Unlike Meta and Microsoft, Apple has been relatively conservative in its AI investments.
The company’s stock managed to stay in positive territory even as other AI-related stocks tumbled following DeepSeek’s emergence.
DeepSeek’s success means it could be possible for others to replicate lower-cost, more efficient AI models. That would be a win for Apple, analysts say.
Apple took a step forward on Monday by rolling out a software update enabling Apple Intelligence features by default on supported iPhones, iPads, and Macs.
This move signals a gradual integration of AI into its ecosystem.
“We believe Apple stands to benefit from more efficient generative AI models in the long term, given that its strategy focuses on edge processing and smaller models for consumer inference,” Morningstar Equity analyst William Kerwin wrote on Monday.
“We don’t see Apple as a direct beneficiary of the DeepSeek model, but that trends toward more efficient, smaller models, bodes well for the firm’s AI strategy.”
Apple has also been open to AI partnerships, recently integrating OpenAI’s ChatGPT into its software.
Future deals with Google’s Gemini or even a potential DeepSeek collaboration remain speculative.
What about the services segment?
The services segment—led by the App Store and product support—has been Apple’s fastest-growing business for several years, becoming even more crucial as product sales slow.
In fiscal 2024, product sales declined by 1%, while services revenue climbed 13%.
Services also boast significantly higher gross margins, reaching 74% last year compared to 37% for products.
However, as the segment matures, its growth has slowed since 2022, and investors will be watching closely for any further deceleration.
What to expect from AAPL post earnings?
Historically, AAPL shares have exhibited positive movement following earnings announcements.
Data indicates that in 8 out of the last 12 earnings reports, the stock experienced an average increase of 1.8% on the first trading day after the release.
While the stock has faced challenges earlier this month, including a nearly 15% decline from its 52-week high in December 2024, it has recently rebounded, finding support near $220 and closed at $238.26 on Wednesday.
Wall Street analysts have assigned Apple stock a “Moderate Buy” consensus rating, with an average price target of $241.94, indicating limited near-term upside from the current market price.
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