Apple earnings preview: China strategy and iPhone 16

Apple (NASDAQ: AAPL) has reclaimed its title as the world's most valuable company, with its stock price up 15.35% YTD. However, this earnings report came at a critical time, especially after disappointing results from other leading tech companies. Analysts are focusing on Apple's results in China and the expected impact of Apple Intelligence, the company's latest artificial intelligence system.

 

Key expectations

 

Analysts forecast Apple's sales to be $84.377 billion, up 3.15% from last year, and earnings per share are expected to be $1.34, up 6.35% from the same period last year. Beyond these key numbers, however, there are several key areas of focus:

 

• China market performance: China remains Apple's most important market, despite growing competition from local brands like Huawei. Analysts forecast a 2.6% decline in sales in China, where Apple's market share fell to 14% in the second quarter, down 2% year-on-year.

 

• Apple Intelligence: unveiled at the Worldwide Developers Conference (WWDC24) in June, Apple's new artificial intelligence system has been a significant driver of the company's share price recently. Earlier this week, Apple released the first version of Apple Intelligence in iOS 18.1, which introduces new artificial intelligence capabilities for Siri, allowing the assistant to generate emails and images. This technology is initially available on the iPhone 15 Pro and could trigger a big wave of updates.

 

• Services division performance: Investors will also be interested to see how Apple's highly profitable services division performs, as this segment plays a crucial role in the company's overall financial health.

 

Stock price and valuation

 

To assess the potential impact of today's earnings on Apple's stock price, it's important to consider both analyst forecasts and valuation models. The average 12-month target price set by analysts is $226.18, which is just 1.85% above Wednesday's closing price, suggesting that the stock is currently fairly valued.

 

However, InvestingPro Fair Value, which incorporates many reputable valuation models, advises caution, estimating Apple's fair value at $174.27. This indicates a potential downside risk of more than 21% from the current stock price.

Given analysts' cautious price forecasts and valuation models suggesting Apple could be overvalued, today's earnings results are critical. Significantly exceeding expectations could drive the stock price higher. However, as always, Apple's future guidance will play a significant role in shaping market sentiment, potentially influencing the direction of the stock more than the earnings numbers themselves.