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CFDs are complex instruments. 71% of retail client accounts lose money when trading CFDs, with this investment provider. You can lose your money rapidly due to leverage. Please ensure you understand how this product works and whether you can afford to take the high risk of losing money.

Apple’s Q1 earnings preview: Can AI features and services resilience drive outperformance?

Key positives may centre on continued growth momentum in services revenue and margin improvements. However, weak growth trends in its products, particularly the iPhone, ought to be addressed.

Trading charts Source: Adobe images

When does Apple Inc report earnings?

Apple Inc is set to release its quarter one (Q1) financial results on 30 January 2025 (Thursday), after the US market closes.

Apple’s earnings – what to expect

Revenue for 1Q 2025 is projected to rise 3.9% year-on-year (YoY) to US$124.2 billion, compared to US$119.6 billion in the same quarter last year. This reflects a slower growth rate than the 6.1% recorded in 4Q 2024.

Earnings per share (EPS) are expected to increase by 7.8% YoY to US$2.35, up from US$2.18 a year ago. Similarly, this represents a deceleration from the 12.3% EPS growth in 4Q 2024.

Key positives in the upcoming results may centre on continued growth momentum in services revenue, which contributes approximately 20% of total revenue. Margin improvements could also lend some support, with a 0.6% improvement in gross margins expected for the upcoming reporting quarter. However, these gains will need to offset weaker growth trends in iPad, wearables, and—most notably—the iPhone, which remains Apple’s primary source of revenue.

Earnings per share key components Source: Refinitiv
Earnings per share key components Source: Refinitiv

iPhone demand in other regions eyed to offset China weakness

The upcoming reporting quarter will offer insights into year-end holiday spending and the initial sales performance of the iPhone 16 series. Despite inflationary pressures, US consumer spending has been resilient, with retail sales averaging 0.5% month-on-month growth in 4Q.

A Mastercard SpendingPulse report further highlighted a 6.7% year-on-year increase in online spending during the holiday shopping period (1 Nov to 24 Dec), exceeding forecasts and suggesting continued momentum in US demand.

Concerns, however, have centred on potential challenges in iPhone sales in China. According to Counterpoint Research, Apple iPhone sales in China are estimated to have declined by 18.2% during the December quarter, triggering a wave of analyst downgrades.

Nevertheless, with these concerns potentially priced into the recent share price dip, investors will be looking out for any positive surprises. While iPhone sales in Greater China have been contracting over the past four quarters, growth in other key markets, such as the US, Europe and Asia, may help to offset the weakness and could still support overall outperformance.

Growth momentum in Apple’s services segment to continue

While slowing growth in iPhone sales could directly impact Apple’s installed base of active devices, its user ecosystem has proven to be resilient thus far. The services segment has posted its fifth straight quarter of double-digit growth despite stagnating iPhone sales. We may expect growth momentum for this segment to continue into 1Q 2025, with the resilience likely to be driven by user stickiness, which supports a steady recurring revenue stream, along with higher monetization of existing users.

Focus remains on Apple’s initiatives in leveraging AI across its ecosystem

The first wave of Apple Intelligence features debuted in late October last year, and the upcoming results may offer early insights into whether the integration of generative artificial intelligence (AI) models into Apple's ecosystem can resonate with its customers. The advancements aim to enhance the user experience and improve operational efficiencies, with market participants closely watching to see if they can encourage upgrades across Apple's product lineup and drive higher-than-expected revenue growth.

Apple's progress in AI includes the Neural Engine embedded in its chips, which powers key features such as Face ID, Siri, and real-time image processing in its cameras. Additionally, AI is also deeply integrated into Apple's services, from personalized recommendations in Apple Music and Apple TV+ to features like Focus and Siri Suggestions in iOS.

Apple has been the key laggard among the Magnificent Seven

Year-to-date, Apple has been the laggard among the Magnificent Seven, posting a -11.1% return and standing as the only one in negative territory. Despite its underperformance, the company's valuation still stands relatively fair compared to its peers. This underscores the pressure on Apple to enhance its earnings prospects in order to regain investor confidence and drive renewed interest.

Price / Earnings-to-Growth Source: Refinitiv
Price / Earnings-to-Growth Source: Refinitiv

Technical analysis – Room for a near-term bounce, at least for now

Apple’s share price slipped into correction territory last week, retracing 15% from its December 2024 peak, and returning to a previous consolidation range between the US$214 - US$237 levels. A near-term bounce could still be on the horizon, as previous instances of the daily relative strength index (RSI) reaching oversold conditions have often triggered short-term recoveries.

The recent decline in share price stems from a series of negative developments, including reports of weak iPhone sales in China and multiple analysts’ downgrades. These setbacks may have already been priced into investors’ expectations, potentially leaving room for positive surprises in the upcoming earnings report.

Key immediate support levels to monitor include its 200-day moving average (MA) and the horizontal support at US$214.00. In the event of a short-term rebound, the resistance confluence at US$238.00 - US$242.00 could present a key hurdle to overcome.

Apple Source: IG charts
Apple Source: IG charts

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