Apple stock retreated Friday after the consumer electronics giant offered weak sales guidance for the December quarter. Analysts say the iPhone 16 upgrade cycle is taking longer to materialize due to the slow rollout of the company's much-touted artificial intelligence features.
Late Thursday, the Cupertino, Calif.-based company beat Wall Street's targets for its fiscal fourth quarter ended Sept. 28. It earned an adjusted $1.64 a share, up 12% year over year, on sales of $94.93 billion, up 6%.
But Apple's fiscal first-quarter guidance missed estimates. Apple expects its total revenue to grow in the "low to mid-single digits" on a percentage basis year over year in the December quarter. Wall Street was modeling about 7% sales growth in the period.
Further, Apple said it expects its services revenue to rise about 13% year over year in fiscal Q1.
Apple's guidance implies hardware revenue growth of zero to 3% in the December quarter, Jefferies analyst Edison Lee said in a client note. He maintained his hold rating on Apple stock but cut his price target to 211.84 from 212.92.
On the stock market today, Apple stock fell 1.3% to close at 222.91.
Is Apple Sandbagging Its Guidance
KeyBanc Capital Markets analyst Brandon Nispel said he believes Apple's guidance calls for 1% growth in hardware sales in the current quarter. Consensus expectations were for 5.6% growth in the period, he said in a client note.
Nispel kept his underweight, or sell, rating on Apple stock with a price target of 200.
UBS analyst Wamsi Mohan believes Apple is sandbagging a bit with its guidance.
"We view the revenue guide as conservative and see the opportunity to modestly beat the December quarter," he said in a client note. He rates Apple stock as buy with a price target of 256.
Morgan Stanley analyst Erik Woodring said Apple's guidance reflects a reduction in iPhone builds by 3 million to 4 million units.
"With confirmation of build cuts now behind us (and embedded in Street estimates), downside is likely limited, and we want to be early to the iPhone 17 cycle," Woodring said in a client note.
He rates Apple stock as overweight, or buy, with a price target of 273.
Apple Stock: Slow Rollout Of AI Features
Key for the next two months will be tracking consumer response to the first Apple Intelligence features, which rolled out on Monday. Apple Intelligence is Apple's take on generative AI. The next batch of AI features is scheduled for release in December.
Oppenheimer analyst Martin Yang said patience is required before Apple sees a hardware sales boost from Apple Intelligence. He maintained his outperform rating on Apple stock with a price target of 250.
"Incremental management comments on the earnings (call) confirmed our view that (the) new iPhone cycle, supported by Apple Intelligence, will take more time to materialize comparing to previous cycles," Mohan said in a client note. "We expect the iPhone 16 product cycle to see stronger momentum in calendar 2025, when Apple Intelligence is more widely deployed across different markets."
Investors also are focused on Apple's declining sales in China, where the iPhone faces stiff competition from domestic handset makers including Huawei, Xiaomi, Honor and Oppo.
Apple stock is on the IBD Tech Leaders list.
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