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The earnings season for the “Magnificent 7” began with a bang with Tesla (TSLA), and the momentum continued with Alphabet’s (GOOG) Q3 release. However, the coveted group has lost some steam, as both Microsoft (MSFT) and Meta Platforms (META) are trading lower in the pre-market today after releasing their September quarter earnings.
While both mega-cap companies beat estimates for the quarter, markets were spooked by their guidance. Microsoft’s revenue guidance was a bit soft, and Meta’s commentary on widening Reality Labs losses and higher artificial intelligence (AI) capex worried investors.
Both Apple (AAPL) and Amazon (AMZN) will release their September quarter earnings after the closing bell tonight. AAPL is stepping into the fiscal Q4 2024 confessional near its record highs. However, analysts are a bit circumspect on the stock this earnings season, and even some of the bulls expect a muted quarter.
Apple Q3 Earnings Preview
Analysts expect Apple to report revenues of $94.4 billion in fiscal Q4 – a YoY rise of 5.5%. AAPL has stopped providing quantitative guidance since the COVID-19 pandemic, but it does provide some directionality. During the previous earnings call, the company said that it expects its September quarter revenue growth to be “similar” to the June quarter, when its revenues had risen by nearly 5% YoY. The company guided Services revenues to grow by double digits in the fiscal fourth quarter, similar to what it delivered in the first nine months of the fiscal year.
Analysts expect Apple’s revenue growth to pick up slightly to 6.7% and 7.7%, respectively, in fiscal Q1 and Q2 of 2025. While the expectations seem to bake in low growth in the corresponding quarters last year, where revenues actually fell 4.3% YoY in fiscal Q2 2024, they are also factoring in some growth in iPhone 16 sales in the coming quarters.
Consensus estimates call for a mere 2% YoY rise in Apple’s fiscal Q4 earnings per share (EPS), but analysts expect profits to rise over 13% YoY in the next fiscal year.
What Should You Watch for in Apple’s Q4 Earnings Call?
During Apple’s Q4 earnings call, I will watch out for the following:
Apple Intelligence: While Apple Intelligence was expected to drive iPhone 16 sales, so far, the company has released just a handful of features, and only a month after the product went on sale. During the fiscal Q4 earnings call, I will watch out for commentary on the timeline of more features.
Apple Intelligence features will finally be available in the E.U. starting in April, after the company previously held back the feature in the bloc due to regulatory issues. The features, however, are not yet available in China, and during the earnings call Apple might comment on a possible rollout of Apple intelligence in its biggest market outside of the U.S.
Vision Pro Headset: Reports suggest that Apple has scaled back production of its Vision Pro virtual reality (VR) headset. During the earnings call, Apple might comment on its VR headset strategy, as there don’t seem to be many takers for premium headsets. However, the lower end of the market is still strong, and rival Meta Platforms has also pivoted to low-priced headsets.
AAPL Stock Forecast
Apple has a consensus rating of “Moderate Buy” from the 32 analysts covering the stock. It is the second worst-rated stock among the Magnificent 7, ahead of only Tesla, which has a “Hold” rating. Apple’s mean target is $241.64, which is just about 5% higher than Wednesday’s closing prices.
Apple has had a love-hate relationship with sell-side analysts this year. Three brokerages downgraded AAPL stock in the first two weeks of January alone, which was quite a rarity for the company.
Analysts’ sentiment did eventually start to turn around, particularly after the Worldwide Developer Conference (WWDC) in June, where Apple unveiled its AI initiatives. But over the last month, brokerages have turned cautious on the stock again, as reports suggest that iPhone 16 sales are not exactly leading to a massive upgrade cycle – at least, not yet.
“Apple is an impressive business with what we believe are unrealistic expectations to re-accelerate growth across all product categories and geographies,” said KeyBanc analyst Brandon Nispel in his note last week, while downgrading the stock to “Underweight.”
Apple Stock Bulls Are Also Cautious
Even those brokerages that are bullish on Apple now see the “AI upgrade cycle” as more of an iPhone 17 story for the next fiscal year, as the company gradually releases its “Apple Intelligence” features. The overall sentiment now seems to be that in the near-term, iPhone sales won’t pick up, as the AI features currently released might not be enough to cajole fence sitters to grab a new smartphone. I don’t expect much fireworks from Apple’s fiscal Q4 earnings call, even as there could be some positive commentary about the Greater China region, where the iPhone 16 sales in initial weeks have been reportedly quite strong as compared to iPhone 15. That said, Apple does not have much margin of error, as with a next 12-month (NTM) price-to-earnings (PE) multiple of nearly 32x, it is priced to near-perfection.
On the date of publication, Mohit Oberoi had a position in: AAPL , MSFT , GOOG , TSLA , META , AMZN . All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
