Earlier this month, analysts at KeyBanc Capital Markets downgraded Apple’s (NASDAQ: AAPL) stock, citing near-all-time high valuation levels and an expected slowdown in US sales growth.
In particular, KeyBanc’s Brandon Nispel said he expects Apple’s US sales “to struggle” due to a challenging upgrade cycle for its biggest product, the iPhone, amid slower consumer spending. The stock’s rating was cut from Overweight to Sector Weight.
Apple’s shares rose more than 36% year-to-date, although they retreated notably from their record high of more than $196 apiece recorded at the end of July.
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With Apple’s Q4 fiscal earnings report set to be released on November 2, investors are eager to gain insights into whether AAPL presents a promising buying opportunity or should be approached with more caution.
Q4 earnings expectations
Current Wall Street estimates are for Apple’s fourth-quarter revenue to witness a slight drop of 1% year-over-year (YoY) to $89.3 billion, from $90.1 billion in the same period last year.
Meanwhile, earnings per share (EPS) are projected to rise 7.7% YoY and 10.3% quarter-on-quarter to $1.39, while the company’s Earnings Before Interest, Taxes, Depreciation, and Amortisation (EBITDA) margin is anticipated to grow to 32.2%, up slightly from the previous quarter’s 31.9%.
As shown, Wall Street is largely bullish on Apple’s Q4 report, but it is the actual results that could make an impact on AAPL’s stock. That said, the stock is likely to attract bulls if the tech giant beats estimates and provides a bullish sales outlook for the coming quarters. On the other hand, failing to meet expectations could lead to a sell-off.
Slowing demand in China
iPhone remains the single most important Apple product, and as such, its sales are closely monitored by investors and analysts as bellwether for the company’s performance and growth.
Having said that, the newly-released iPhone 15 is yet to make an impact in the Greater China market, from where Apple derived one-fifth of its revenue last year.
According to a report by Counterpoint Research, iPhone 15 sales have underperformed its predecessor for the first 17 days in China, with unit sales of Pro Max and Pro model falling 14% and 11% YoY, respectively.
AI efforts
Artificial intelligence (AI) is the name of the game in 2023 and this applies to Apple as well. The company’s AI ventures will be closely examined in the upcoming Q4 report, with Morningstar analysts expecting the company to keenly promote its advancements in this area within existing products, however, it “will likely keep its future AI ambitions close to the vest.”
That said, many believe Apple is currently lagging behind other tech giants such as Microsoft (NASDAQ: MSFT), Amazon (NASDAQ: AMZN), and Alphabet (NASDAQ: GOOGL) in AI developments. If this trend persists, this could dampen Apple’s future growth and stock appeal as tech firms flock to reinforce their offerings with AI technology.
However, just because Apple has been quiet about it, does not mean it is not already deep in the AI game.
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