AAPL Earnings Preview- What to watch for tonight

Earnings reports from Apple Inc. and Amazon.com Inc., due after market close, will be pivotal in directing the Nasdaq 100 following a volatile period. As the last megacaps to release results before Nvidia Corp. at the end of August, these reports will set the tone for tech investors, with a keen focus on how artificial intelligence is driving growth. Apple's update on iPhone demand and Amazon's cloud-computing advancements will also provide insights into consumer spending trends.

Shares of AAPL are down -0.64% although the selling is likely due to broad market pressure rather than concerns around the upcoming earnings report. Shares are testing support at the 10-day moving average ($220). Critical resistance lies above at the 20-day ($226) while the 50-day ($212) sets up as a key area of support in the after hours.

Apple Inc. (AAPL) is set to report its fiscal Q3 2024 earnings after the market closes today, with a conference call scheduled at 5:00 p.m. ET. Analysts expect the company to report a revenue increase of 3.2% year-over-year to $84.4 billion and an adjusted EPS growth of 6.3% to $1.34. This follows a year-ago performance of $81.8 billion in revenue and $1.26 EPS. Key product categories like the iPhone, Mac, and Services are under scrutiny, with analysts projecting iPhone sales to decline by 2.6% to $38.6 billion, while Mac sales are expected to rise by 12%, driven by the new MacBook Air with the M3 processor.

Historical performance shows that Apple has navigated a challenging market environment, often exceeding expectations despite fluctuations in key segments. This quarter, analysts are keenly watching for updates on iPhone sales, particularly in China, where competition and economic conditions have been tough. Additionally, the performance of Apple's Services segment, which has consistently shown double-digit growth, will be critical.

Market participants are especially interested in Apple’s commentary on future iPhone sales and its AI initiatives. Bullish statements about the upcoming iPhone 16 and continued stability in China could drive shares higher. The integration of new AI features and a significant portion of iPhone users due for an upgrade are expected to spark a demand cycle from the December quarter through 2025.

Analysts from Evercore ISI and TD Cowen have expressed optimism about Apple’s potential to modestly beat Q3 expectations and provide strong guidance for Q4. The company’s stock has risen 15% this year to $222.08, outperforming the broader tech sector despite recent market pressures. Factors contributing to this optimism include expected growth in Services and Mac sales, as well as potential positive impacts from AI developments and new product launches.

Key drivers for the upcoming earnings report include updates on Apple's AI strategy and any indications of strong demand for new iPhone models. The AI-powered features announced at the WWDC, such as an advanced Siri and image creation tools, are expected to drive a major upgrade cycle. Analysts like Wedbush’s Dan Ives anticipate significant demand for these features, particularly as 270 million iPhones have not been upgraded in over four years, which could boost investor sentiment.

Overall, while Apple faces some headwinds, particularly in the Chinese market due to competition from Huawei and geopolitical tensions, the company's strong Services growth and strategic focus on AI and new product innovation are seen as positive factors. The combination of these elements suggests that Apple is well-positioned to deliver solid results and provide encouraging guidance, potentially driving the stock higher.

Apple's Q2 (March) earnings report revealed a mixed performance with modest upside in EPS and revenue, which generally aligned with expectations. A significant highlight was Apple's announcement of a $110 billion increase in its share buyback authorization and a slight dividend increase. However, the primary catalyst for the positive market response was the anticipation of Apple's AI strategy, set to be detailed at the WWDC on June 10, and an upcoming product announcement.

Despite a 4.3% year-over-year decline in total revenue to $90.75 billion, the drop was partly attributed to the previous year's boosted revenue from replenishing iPhone inventory post-COVID supply disruptions. Adjusted for this, revenue would have grown in Q1. iPhone sales, although down 10.5% year-over-year to $45.96 billion, were stable when considering the prior year's one-time impact. Mac sales saw a 3.9% increase to $7.45 billion, driven by strong performance from the new MacBook Air with the M3 chip. Conversely, iPad and Wearables revenues fell 17% and 9.6% year-over-year, respectively, due to tough comparisons from previous product launches. Services revenue, however, hit a record $23.87 billion, showing strong growth with over a billion paid subscriptions.

For Q3 (June) guidance, Apple expects low single-digit year-over-year revenue growth, in line with or slightly above analyst expectations, with particular growth in Services and iPad categories. While Apple has been relatively quiet on its AI plans compared to other tech giants, the company expressed confidence in its generative AI opportunities and significant investments in this area. This anticipation, along with the share buyback and new product announcement, has driven the recent positive momentum in Apple's stock.