• Apple reports Q1 earnings on Friday, February 2

• Results may not be exciting, but traders may not care

• AI comments to attract the most attention as usual

 

Q1 Earnings forecasts

Apple Inc will publish its earnings results for the first fiscal quarter ended in December 2023 on Friday February 2. Following a tough year of declines, the iPhone maker could return to the expansion zone, but no fireworks are expected.

Total revenue is forecast to rise to $118 bln, gaining a whopping 30% from the previous quarter but only 0.75% when compared to the first quarter of 2023. As usual, iPhone products will probably bring in the most money, though Apple services will remain the brightest spot for the fifth consecutive quarter, generating the fastest growth compared to other segments.

In other metrics, earnings per share (EPS) are expected to increase to the highest in two years to $2.10 from $1.46 in the three months to September 2023 and $1.88 in Q1 Dec. 2022. Gross profit margin could improve moderately to 45.32% from 45.17% in Q4 and 42.96% in Q1 Dec. 2022, while net income might edge up to $32.5 bln, marking a quarterly growth of almost 42% and an annual expansion of 9%.

Q4 outlook is not great

While the Christmas and New Year holiday season is the busiest and most important period for the company, CFO Luca Maestri gave a dull guidance for the fourth quarter last November, although no formal forecasts were provided. He dashed hopes for a cheerful rebound, saying that revenue will be similar to where it was last year. He then tried to boost sentiment by mentioning that the results could be based on the usual 13 weeks rather than last year’s extended 14 weeks, but investors took it as a sign that headwinds are already visible.

China becomes more competitive

It’s difficult to think what could go wrong in the second most valuable US company by market capitalization, but China could be a source of slowdown for a couple of tech companies, including Tesla too. Apple applied rare discounts on its iPhone 15 model and offered other previous models at cheaper prices in China this month, suggesting that competition with domestic phone makers has intensified. Data from research firm IDC revealed that smartphone shipments to Apple’s third largest market dropped by 2.1% in the fourth quarter, whilst Huawei’s shipments rose rapidly by 36.2%. This could be the outcome of the tit-for-tat retaliation measures between the two major economies, which continue to battle in the technology and security sectors, applying usage limitations to each other despite both also expressing interest in collaboration.

The Digital Market Act in Europe has been another headache recently, accusing Apple of its anticompetitive control of app downloads through its App Store. The company is now seeking an alternative way to allow downloads outside its App Store through some restrictions and high commission rates, but this could become an ongoing issue as Apple’s actions could result in new restrictions and fees.

AI is what it matters the most

Also, critics have been harsh of the not so impressive and limited Apple product releases/updates during 2023. More new releases will take place this year as usual, including the new iPhone 16, new Apple watches, iPads and MacBooks. However, with artificial intelligence coming to the centre stage of the business world, investors would particularly like to know how fast Apple can develop on this front. The $3.5k Vision Pro headset due in February and limited to the US could be the most important launch in 2024, opening the door to a new market. However, the description has been missing any AI features so far, while popular companies such as YouTube, Netflix and Spotify have already denied any support to the product.

Unlike other big tech behemoths such as Microsoft and Alphabet, which have already rolled out their AI search engines, Apple has been relatively more secretive about its AI plans, giving the impression that it’s relatively behind the curve. If this appears to be the case, it could be a huge setback, especially if the trade war with China limits access to semiconductors.

Yet, there are persistent rumours that the company is working on its own large language model and has a senior team of engineers which could help the company integrate into the field. But investors might have to wait until the next major iOS 18 preview in September to get specific details.

Apple stock

Should Apple express its optimism on the AI front, its stock could bounce up to test December’s record high of 199.41 and perhaps test the 200 psychological mark too. The 210-215 region could be the next resistance.

Otherwise, a conservative outlook accompanied by weaker-than-expected readings could press the price towards its 20- and 50-day simple moving averages (SMAs), which lie within the 188.00-190.55 area. A steeper decline could pause near the 200-day SMA and the important 180.00 mark, where the stock created a bullish double bottom pattern.

Valuation & performance

As regards valuation, Apple’s forward P/E ratio is 28.7, which is slightly lower than its 2020 historic high but above Samsung’s 15.75, Sony’s 20.37 and Dell’s 23.37. Among the magnificent 7, it has the lowest P/E ratio after Alphabet. Hence, although it’s considered expensive, it’s still in a better place than some of its major peers.

Likewise, its performance has been relatively weaker in the S&P 500 and Nasdaq 100 communities, with Amazon, Alphabet, Netflix, and Tesla marking a stronger yearly performance than Apple.