• Apple expected to announce EPS and revenue growth

• China sales and AI may take center stage

• Valuation and performance allow room for recovery

• The iPhone maker announces results on Thursday, after the closing bell

 

Earnings to grow from a year ago

On August 1, after the closing bell on Wall Street, Apple is scheduled to announce its earnings results for fiscal Q3, with expectations pointing to earnings-per-share (EPS) of $1.35, marking an increase of 7.08% from the same reporting period of 2023, but a slide from the $1.53 reported in Q2.

Yearly growth is anticipated for revenue as well, with analysts estimating a 3.34% y/y increase to 84.53bn according to LSEG IBES data. However, this would still be the second q/q decline, which could add to concerns surrounding slowing sales in China, especially with revenue coming in from the world’s second-largest economy expected to have declined again.

China problems

The iPhone maker has been suffering in China as domestic phone makers have started winning the war, even as Apple and its retail partners have proceeded with material discounts to attract customers.

Huawei was the number one smartphone seller in China during the first half of the year, with vivo taking first place in the second quarter. These two firms alongside Xiaomi registered strong double-digit growth during the second quarter, pushing Apple to sixth place.

Having said all that though, according to the firm’s prior estimates, revenue from China may have started to rebound in the September quarter and it remains to be seen whether this will be confirmed this week by the updated projections.

Artificial Intelligence

Investors may pay close attention to commentary about artificial intelligence (AI). At its annual Worldwide Developers Conference (WWDC), the tech-giant announced its iOS18, Apple Intelligence, an AI partnership with OpenAI, and several other AI-related features. The intelligence system relies on personalized content to provide assistance and it will be available at some point in beta on iPhone 15 Pro, ProMax, and iPad.

Apple is now expected to unveil an iPhone 16 on AI steroids in September, and thus investors seeking more clarity on the matter may be eager to listen to what the company has to say about its AI initiatives during the earnings call.

Valuation and performance far from stretched

From a valuation perspective, Apple appears to be the third cheapest stock within the ‘Magnificent 7’ group, with its forward-price-to-earnings (P/E) ratio hovering only slightly above its 5-year moving average.

In terms of performance, Apple’s stock had a positive performance since the start of the year, gaining around 13%, but this was the second lowest among its peers, with only Tesla faring worse.

This suggests that the share’s rally this year has not been stretched and that there is room for upside potential should the earnings results surprise to the upside, especially if the outlook for sales in China improves.

On top of that, when it previously made its results public, Apple expected its free cash flow to continue accelerating through its projection horizon. So, if this remains the case, combined with expectations of lower interest rates in the US this year and the next, it may keep the firm’s net present value elevated.

Despite setback, uptrend remains intact

From a technical standpoint, Apple’s stock has been in a corrective mode since it hit a record high of $237.23 on July 15. However, the share price remains above the uptrend line drawn from the low of April 19, as well as above both the 50- and 200-day exponential moving averages (EMAs).

This corroborates the idea that there is still a decent chance for the bulls to jump back into the action. If so, they could drive the price above the $220.00 barrier, a break which may pave the way for another test at the all-time high of $237.23.

For the outlook to be considered bearish, the bears may need to push the battle below the $207.00 zone. Such a move would also confirm a break below the aforementioned uptrend line and may allow declines towards the $193.00 area, near the 200-day EMA.