We are about to witness an avalanche of tech earnings this week, with industry heavyweights like Apple (AAPL), Alphabet (GOOG), Meta Platforms (META), and Amazon (AMZN) set to unveil their quarterly reports. The added intrigue of the Fed’s initial meeting of 2024 injects some spice into this already earnings-rich week, where nearly a fifth of S&P 500 Index ($SPX) constituents will disclose their earnings. Apple, which impressively gained 49% in 2023, outpacing the 44% returns of the Nasdaq Composite ($NASX), found itself as the worst-performing FAANG stock of the year. As if that wasn’t enough, the tech giant further underperformed in 2024, lagging behind its FAANG peers and falling short of its $3 trillion market cap, ceding the title of the world’s most valuable company to Microsoft (MSFT).
Apple is scheduled to release its fiscal Q1 2024 earnings report on Thursday after the bell. With an eye to the upcoming earnings, let’s delve into what the markets anticipate from this Cupertino-based company and whether AAPL stock can once again seize its $3 trillion market cap post-earnings.
Apple Fiscal Q1 Earnings Preview
During fiscal year 2023, Apple reported negative revenue growth across all four quarters – the first time experiencing year-over-year revenue declines over such a period since 2001. Its outlook for the December quarter didn’t inspire confidence, as it projected revenues “similar” to the previous year. Consensus estimates indicate an anticipated <1% rise in revenues for fiscal Q1 and a 3.4% increase for the full year. Nevertheless, analysts expect the tech behemoth's earnings per share to surge by 11.1% in the fiscal first quarter.
Investors should focus on certain key aspects in Apple’s forthcoming earnings:
- Commentary on the Chinese Market: China, being Apple’s largest overseas market, is facing a structural slowdown, posing a significant risk for the company. Additionally, Apple is encountering stiff competition from domestic Chinese smartphone firms like Huawei and Xiaomi. Of note, Huawei, following U.S. restrictions, has staged a remarkable recovery with competitively priced models. Observing Apple’s remarks on the Chinese market during the earnings call will be pivotal.
- Guidance: Apple ceased furnishing quantitative forward guidance at the onset of the COVID-19 pandemic in 2020. Nevertheless, the company does offer directional cues for the following quarter, which the market will scrutinize to assess whether the company is reversing course after facing disappointing topline declines in the last fiscal year.
- Update on Vision Pro: AAPL may also furnish an update on the Vision Pro augmented reality headsets, with deliveries expected to initiate next week.
AAPL Stock Forecast: Analysts’ Temperance
Alarmingly, Apple incurred three downgrades in January, a rare occurrence for the company. Notably, some Wall Street analysts exhibit restrained optimism towards AAPL stock ahead of the earnings report. Barclays, which downgraded Apple earlier in the month, consistently maintains its “underweight” rating on the stock, envisioning a likelihood of Apple offering tepid guidance for the March quarter amidst waning hardware sales. While Baird and UBS anticipate Apple surpassing estimates for the December quarter, they exercise caution regarding the outlook for the March quarter.
Apple holds a “Moderate Buy” rating from analysts, with the mean target price of $206.08 representing a mere 9.1% increase from current levels. Among AAPL’s FAANG peers, Amazon elicits the most bullish sentiment, with analysts portraying least optimism for Netflix (NFLX) despite the latter’s robust subscriber growth in the last two quarters.
Can Apple’s Market Cap Surpass $3 Trillion Again?
Apple’s market cap falls just shy of $3 trillion, and an earnings win could propel it back to that coveted threshold. However, sceptics argue that Microsoft could outpace Apple to retain the top spot. An investigation by Reuters, polling 13 investors, strategists, and portfolio managers, reveals unanimous expectation that Microsoft will eclipse Apple in value over the next five years.
Notably, both Apple and Microsoft are credible contenders to reach $5 trillion in market cap. While this might have seemed implausible a couple of years ago, even Nvidia (NVDA) now harbors aspirations to join this elite club with a market cap nearing $1.5 trillion, positioning it as the fifth most valuable U.S. company.
For Apple, the quest for new avenues of growth becomes imperative. While it is pinning hopes on the Indian market, this may not compensate for flagging sales in China. Similarly, from a product perspective, the new Vision Pro headset might not offer the game-changing opportunity that Apple direly requires.