Here come Apple’s quarterly results. This is what traders are watching

Published Thu, May 2 20242:26 PM EDT

Embattled tech giant Apple will have to convince investors of its artificial intelligence strategy and China market trends during its fiscal second-quarter earnings announcement Thursday after the bell. The Magnificent Seven member has struggled in 2024, with shares losing about 11% year to date. Declining iPhone sales trends in its major China market, along with the cancellation of its electric car project to rival Tesla, has put an overhang on sentiment surrounding the stock. Apple is now the second worst-performing stock in the Magnificent Seven group, and shares are up a mere 2% over a 12-month period. AAPL 1Y mountain Apple shares' performance over the past year For the fiscal second quarter, analysts expect earnings of $1.50 per share and $90.01 billion in revenue, per LSEG consensus estimates. Despite Apple's rocky performance over the last few months, a number of Wall Street analysts are maintaining a relatively positive view on the stock. "Buy the fear," Bernstein analyst Toni Sacconaghi wrote in a note on April 29 when upgrading the stock to outperform from market perform. He noted that while expectations for the prior-quarter results are low, "guidance could serve as a clearing event for the stock, similar to 2023 and 2019." Sacconaghi has a $195 price target on shares, suggesting 15% upside from Wednesday's close. China demand concerns Investors will be listening closely for management's comments on China demand, as the nation represents one of its largest markets and also dominates its supply chain. Consequently, a recent drop in iPhone sales in China has raised concerns for investors. Sales of the iPhone fell 19.1% in the first quarter of 2024 amid intensifying competition from Huawei, according to a report from Counterpoint Research. Bernstein is optimistic that the ongoing weakness in the China market "is more cyclical than structural." "Historically, Apple's China business has exhibited much higher volatility than Apple overall, given its very feature-sensitive installed base," Sacconaghi said. Incremental generative AI features for the upcoming iPhone 16 and replacement cycle tail winds could also boost shares, he added. Oppenheimer analyst Martin Yang lowered his forecast for the current quarter ahead of the report, accounting for softer iPhone sales trends in China. "AAPL's weakness in China, in our view, is primarily driven by macro factors rather than competition. We expect Chinese middle-class consumers to stay cautious as their real estate holdings and stock portfolios remain at multi-year bottoms," Yang said in a client note on April 30. He holds an outperform rating and $200 price target on shares. Yang also thinks that the release of the iPhone 16, expected this fall, could drive a reacceleration in shares. JPMorgan underscored investors' focus on "measuring downside from cyclical headwinds prior to AI headwinds." Better-than-feared outcomes could create a positive setup for the stock, according to analyst Samik Chatterjee. "The upcoming earnings print will still matter for investors in offering insights into the magnitude of the cyclical challenges on account of pressured consumer spending as well as the headwinds in relation to market share moderation in China," Chatterjee said in a research note on April 30. The analyst has an overweight rating and a $210 price target on the stock. Meanwhile, TD Cowen's Krish Sankar thinks growth in underpenetrated markets, such as India, could offset some of the weak demand trends across the China segment. Sankar has a buy rating and a price target of $220. AI updates Several analysts think that promising updates on new generative AI features could help the stock make a comeback this year. Apple's 2024 Worldwide Developers Conference (WWDC) in June will likely hold major updates as to where the company stands in the AI race. JPMorgan's Chatterjee thinks the stock's current pullback provides an attractive entry point ahead of a potential rebound from an AI upgrade cycle. He holds a "favorable outlook on the iPhone cycle led by AI upsides." Citi expects sales in the previous quarter to come in below estimates and is remaining conservative on iPhone demand in 2024. However, the firm says unit demand could rise in 2024 as Apple rolls out generative AI features. "We believe 1HCY24 bad news is largely priced-in and investors are looking through the upcoming earnings to WWDC24 event in June for AI updates," analyst Atif Malik said in a note on April 29. Malik reiterated his buy rating on the stock ahead of the announcement while notching down his price target to $210 from $220. TD Cowen's Sankar also expects that an AI strategy rollout at the WWDC event could be next major catalyst for shares. "We think a compelling AI strategy could matter more to stock sentiment and valuation over [the] medium term as it will help investors better gauge AAPL's product competitiveness in the coming GenAI market," Sankar wrote in an April 29 note.