Apple stock has surged 30% since the second quarter, and now all eyes will be on the tech giant’s upcoming earnings report scheduled for August 1.
Bernstein analysts expect Apple Inc (NASDAQ:AAPL) Q3 earnings to align closely with consensus estimates, projecting revenues of $83.7 billion, a 2.3% year-over-year increase, compared to the consensus estimate of $84.3 billion.
The anticipated revenue growth is supported by improving iPhone sales in China and strong performance in the iPad and Mac segments.
“That said, we do not expect material revenue upside in the quarter,” the investment firm’s analysts added.
Looking ahead to Q4, the consensus models higher-than-seasonal growth, which Bernstein views as aggressive. They predict that Apple might guide lower on revenue for Q4, estimating $89.3 billion compared to the consensus of $92.3 billion. However, they believe this guidance might not heavily impact investor sentiment, as attention is shifting toward the iPhone 16 and FY 2025.
“A key question is whether an upgrade cycle could get pushed out beyond FY 25,” Bernstein analysts continued.
“We continue to expect AI functionality to lead to a strong upgrade cycle, and that it may not be a bad thing for the stock if AI tailwinds are spread out between the iPhone 16 and 17 cycles,” they added.
Analysts highlighted several key areas to watch in Apple’s upcoming earnings print.
Among those is growth in the company’s Services unit, which has outgrown the rest of Apple's business, contributing significantly to revenue. They project Services revenue growth for Q3 at 13% and 12% for the year, supported by strong growth in iCloud, licensing, and the App Store.
Meanwhile, the health of Apple's China business remains a concern, despite stronger iPhone volumes in May. There are doubts about the accuracy of third-party data and the sustainability of this strength, given that it partly resulted from discounting.
Apple’s product gross margins have also improved significantly, driven by various factors including higher iPhone mix and lower depreciation expenses. However, Bernstein analysts caution rising memory prices and price concessions on iPhones could pressure margins in the future.
“While the impact might not be felt until the iPhone 16 cycle, we believe investors should closely monitor commentary around the gross margin forces at work. We forecast Q4 gross margins to decline sequentially from 46.3% to 46.1%,” analysts wrote.
Moreover, any changes to R&D and capex spending plans – particularly related to the build-out of private cloud compute – and broader commentary on Apple Intelligence will also be closely scrutinized, they noted.
Bernstein has reiterated an Outperform rating on AAPL stock ahead of its Q3 report, with a price target of $240.
“We believe recent enthusiasm is likely to persist in the near term, as Apple is increasingly seen as an AI leader rather than a laggard, and the stock is also in its seasonally strong trading period,” the firm’s team explained.
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