Market Anticipation Surrounds Major Tech Earnings
This week is set to be significant for tech companies, with Meta Platforms (META) and Microsoft (MSFT) releasing their quarterly reports later today. Following that, Apple (AAPL) and Amazon (AMZN) will share their numbers tomorrow.
Apple seems to be bracing itself for an honest assessment of its recent performance. Meanwhile, Tesla (TSLA), the standout underperformer, has had trouble generating impressive revenue—CEO Elon Musk’s optimistic forecasts didn’t help much in correcting past revenue declines.
In Apple’s case, stocks dipped after the previous quarter’s release, even though revenue surpassed expectations. Will this quarter be any different? Analysts are particularly curious, especially when assessing third-quarter revenue.
Forecasts suggest Apple might report $889.6 billion for the June quarter, which is about 3.7% higher compared to the same period last year. There’s been talk of a moderate revenue increase during this time frame, but it remains to be seen if the predictions hold true.
It’s worth noting that the consensus might lean towards being optimistic given the influence of a weaker dollar. Additionally, reports indicate that sales in China were robust in May and June, hinting that Apple could report solid revenue figures for the upcoming quarter.
For earnings per share, the consensus sees a modest increase of around 1.4% year-over-year, while estimates for the full year show a growth of 5.3%.
Aside from the numbers, there are some key points to watch during the revenue call:
- Guidance: Though Apple stopped providing detailed quantitative forecasts in 2020, they still offer some context. It will be important to listen for topline guidance and overall margins.
- M&A Strategy: While specific acquisitions aren’t expected to be discussed, there might be hints about potential purchases that align with Apple’s AI strategy. There have been whispers about the company eyeing AI startups, but Apple typically doesn’t rush into M&A decisions like some of its competitors.
- Apple Intelligence: There’s an anticipation regarding Apple’s new intelligence feature launching in China in collaboration with Alibaba (BABA), although the deal is reportedly under scrutiny within the U.S.
- Supply Chain Strategy: With tariffs of 20% in Vietnam and 25% in India, the comments from Apple management about supply chain strategies will be crucial. There’s concern about additional tariffs potentially hurting Apple’s iPhone shipments, especially with imports from India facing scrutiny.
Earlier this year, Apple faced a downgrade, yet some analysts have revised their views. For instance, Jefferies upgraded its rating from “underperformance” to “hold” just this month, while JPMorgan raised its target price from $230 to $250.
Despite these revisions, the ratings fluctuate; out of the 37 analysts covering Apple, only 21 rate it as a “strong buy” or “medium buy.” Fourteen suggest a “hold” rating, and two view it as a “strong sell.” The average target price stands at $231.46, reflecting a 9.6% increase from its closing price on July 29, while the top target is close to $300, nearly 42% higher.
Considering year-to-date trends and the situation of larger tech players, Apple’s stock setup appears relatively positive ahead of this earnings review. That said, the sales landscape in China remains challenging, and iPhone makers feel they need to demonstrate their worth to maintain a premium rating in the market.
Ultimately, an increase in revenue is anticipated for Apple, but the inspiring narrative from past quarters may be overshadowed by various macroeconomic and regulatory challenges that the company faces, which will shape its future outlook.
