Apple's Q3 Earnings Preview: AI Potential and Market Expectations

Apple Q3 Earnings Preview: Will AI Elevate iPhone Maker's Stock? - Apple (NASDAQ:AAPL)

Analyst sees Apple positioned for revenue growth in FY25, with AI replacing iPhone sales as a key catalyst for stock upside. As Apple Inc AAPL gears up for its Q3 2024 earnings report, all eyes are on Cupertino, California. According to JPMorgan analyst Samik Chatterjee, Apple is not just coasting on its past success but gearing up for a thrilling AI-driven future that could propel its stock to new heights. Chatterjee has placed Apple on a 'Positive Catalyst Watch,' raising the price target to $265 by December 2025, up from the previous $245 for December 2024. So, what's behind this optimistic outlook? Let's dive into the details. AI is Apple's Next Ace According to Chatterjee, Apple is in a strong position to leverage this upcoming AI cycle, particularly through its iPhone and overall revenue performance. "We expect Apple to reassure investors that the upcoming AI replacement cycle earmarked to begin in earnest in FY25 (Sep-end), and step-up further into FY26, is leveraging a more robust launchpad in FY24 with better than expected revenue drivers," says Chatterjee. He expects a revenue beat for both iPhone sales and the company's total revenue, which could ease investor concerns about Apple's premium valuation multiple. For the third quarter, Chatterjee anticipates Apple's revenue to reach $85.3 billion, slightly above the consensus of $84.3 billion. Earnings per share are expected to be $1.38, compared to the consensus of $1.34. iPhone To Be Key Apple Earnings' Driver Notably, the iPhone is projected to be a key driver of this performance, with estimated sales of approximately 44 million units, leading to $39.9 billion in revenue, surpassing the consensus of $38.9 billion. Strong performance in China and other key regions is expected to contribute significantly to these numbers. Looking ahead to the fourth quarter, Chatterjee forecasts revenue of $95.5 billion and earnings per share of $1.62, both ahead of the consensus estimates. This projection marks the second consecutive quarter of year-over-year revenue growth, following a decline earlier this year. The iPhone, Services, and Mac segments are expected to lead the charge, while the Wearables, Home, and Accessories segment might experience some decline. Read Also: Magnificent 7 Still Comprise Over 30% Of S&P 500 Despite Tech Correction Apple's AI Cycle: Underestimated or Overlooked? While Apple's stock has rallied in recent months, Chatterjee sees room for further upside. He believes that the AI cycle presents untapped opportunities, particularly in improving margins, increasing iPhone volumes, and potentially extending the replacement cycle beyond FY26. Chatterjee believes there is untapped potential within Apple's AI strategy. He outlines three key areas that investors might be underestimating: Margin Boost: The preference for premium iPhones among early adopters has historically led to impressive gross margin improvements, and this trend could continue despite investor concerns about component costs. Volume Expansion: The AI-driven upgrade cycle is not confined to North America. Apple's reach could extend globally, driving volumes beyond expectations and marking a departure from the patterns seen in the 5G cycle. Prolonged Growth: With leading-edge AI features slated for iPhones post-FY26, Apple might witness an extended period of growth, possibly outstripping current expectations. As Chatterjee states, "Our Dec-2025 price target of $265 only assumes a 26x earnings multiple on CY26 estimates as they already embed the tailwinds of the AI replacement cycle." With these factors in play, Apple's upcoming earnings release could be the spark needed to propel its stock to new heights. Read Next: Elon Musk Agrees With Mark Zuckerberg On Apple, Tesla CEO Wonders How Many Enemies He Can Make And Survive Market News and Data brought to you by Benzinga APIs

Apple expected to beat Q3 estimates ahead of upcoming AI cycle: JP Morgan

Apple (NASDAQ:AAPL) has garnered interests surrounding its upcoming release of artificial intelligence-powered devices. However, J.P. Morgan believes next week's Q3 earnings results will beat estimates and provide a catalyst ahead of Apple's AI cycle. "Specifically, we expect Apple to reassure investors that the upcoming AI replacement cycle earmarked to begin in earnest in FY25 (Sep-end), and step-up further into FY26, is leveraging a more robust launchpad in FY24 with better than expected revenue drivers in iPhone as well as for the company in aggregate, with our expectations for a beat now on both fronts," said J.P. Morgan analysts led by Samik Chatterjee, in an investor note on Wednesday. As a result, J.P. Morgan increased it price target on Apple to $265 from $245. The firm also placed Apple on its "Positive Catalyst Watch." "The revenue upside, in turn, drives our expectations for EPS upside, which is likely to lead to consensus revisions for full-year earnings, and partly ease investor concerns around a premium valuation multiple," Chatterjee added. J.P. Morgan also expects upward revisions to iPhone 16 volumes following its launch, which is expected in September. The advancement in Edge AI capabilities could also spur a longer and stronger replacement cycle than seen in years past. J.P. Morgan increased its estimates on Apple's Q3 fiscal 2024 results to revenue of $85.3B from $83.8B. It also upped its expected earnings per share to $1.38 from $1.34. Apple is slated to release its Q3 fiscal 2024 results one week from tomorrow, on Aug. 1. A consensus of analysts calls for earnings per share of $1.33 on revenue of $84.08B. Apple was down 2.7% by mid-morning trading on Wednesday. More on Apple Apple Q3 Preview: Bears, Get Ready For Another iPhone Lesson Apple Buybacks, AI Are Just For Optics Apple Stock Is More Expensive Than Nvidia Apple's App Store conduct under probe by Spain's antitrust agency Apple in focus as Barclays ups estimates on improving iPhone, Mac, services