Buy, Sell or Hold Apple Stock? Key Tips Ahead of Q1 Earnings

Apple AAPL is set to report its first-quarter fiscal 2025 results on Jan. 30.

Find the latest EPS estimates and surprises on Zacks Earnings Calendar.

Apple expects the December quarter’s (first-quarter fiscal 2025) revenues to grow low to mid-single digits on a year-over-year basis. Apple’s fourth-quarter fiscal 2024 net sales increased 6.1% year over year to $94.93 billion.

The Zacks Consensus Estimate for fiscal first-quarter revenues is currently pegged at $124.04 billion, indicating growth of 3.73% year over year. 

The consensus mark for earnings is currently pegged at $2.36 per share, unchanged over the past 30 days. The figure indicates a 8.26% increase from the year-ago quarter.
 

AAPL’s earnings beat the Zacks Consensus Estimate in all the trailing four quarters, the earnings surprise being 5.05%, on average.

Let’s see how things are shaping up prior to this announcement.

Apple’s iPhone Sales Likely to Fall in Fiscal Q1

Apple’s fortunes are heavily reliant on the iPhone, which is by far its biggest revenue contributor. The device accounted for 48.7% of net sales in the fourth quarter of fiscal 2024, wherein sales increased 5.5% year over year to $46.22 billion. 

iPhone sales are likely to have suffered from stiff competition in China from Chinese vendors, including Huawei and Xiaomi. A delay in the launch of Apple Intelligence to a major part of Apple’s installed base has been a concern.

The Zacks Consensus Estimate for fiscal first-quarter iPhone net sales is pegged at $69.189 billion, suggesting 0.7% year-over-year decline.

AAPL’s Services Growth to Remain Steady in Fiscal Q1

The weakness in iPhone sales is expected to be partially negated by the steady growth of the Services segment. An expanding paid subscriber base has been a key catalyst for the Services business, which is riding on the increasing popularity of the App Store and an expanding installed base of devices, albeit with a worsening regulatory environment.

Apple has more than 1 billion paid subscribers across its Services portfolio, offering Apple TV+, Apple Arcade, Apple News+, Apple Card, Apple Fitness+ and Apple One bundle. 

For the Services segment, Apple expects a double-digit growth rate similar to fiscal 2024. The consensus mark for Services is currently pegged at $26.176 billion, suggesting 13.2% growth on a year-over-year basis.

Apple’s Mac Sales to Rise Y/Y

Apple’s Mac shipment is expected to have increased 17.3% year over year in the fourth quarter of calendar 2024, per IDC data. The iPhone maker is estimated to have shipped 7 million Macs, grabbing a market share of 10.1% compared with 8.8% in the year-ago quarter. 

Apple’s estimated shipment growth rate is the largest in IDC’s vendor list, followed by ASUS and Lenovo’s growth of 11.7% and 4.8%, respectively. Dell Technologies DELL and HP HPQ saw a shipment decline of 0.2% and 1.7%, respectively.

In terms of market share, Lenovo maintained the #1 position with 24.5%, trailed by HP and Dell Technologies’ 19.9% and 14.4%, respectively. Apple’s market share improved from 8.8% in the year-ago quarter to 10.1%.

IDC estimates 68.9 million sold units in the fourth quarter of 2024, up 1.8% year over year. In contrast, Gartner estimates shipment of 64.4 million units, up 1.4% year over year. In Gartner’s list, ASUS gains the most in terms of shipments (up 9.8%), followed by Apple (shipments up 4.6%).

AAPL Shares Underperform Sector

Apple shares have returned 16.2%, underperforming the Zacks Computer & Technology sector’s return of 27.5%.

Apple Stock’s Performance

Image Source: Zacks Investment Research

Apple stock is not so cheap, as the Value Score of F suggests a stretched valuation at this moment.

In terms of the forward 12-month Price/Earnings, AAPL is trading at 28.97X, higher than the Zacks Computer & Technology sector’s 27.54X.

Price/Earnings (F12M)

Image Source: Zacks Investment Research

AI Focus Aids AAPL’s Prospects

AAPL has been on the investors' radar thanks to its AI push with the introduction of Apple Intelligence, an advanced personal intelligence system seamlessly integrated into iOS 18, iPadOS 18 and macOS Sequoia.

Apple’s AI push is expected to bring consumer-focused AI-enabled PCs into the market, thereby aiding PC shipments in the long haul. 

AAPL has been playing catch-up in the AI space compared with Alphabet, Microsoft MSFT and Amazon, its peers in the “Magnificent 7” group. Following the launch of Apple Intelligence, its competitive position is expected to improve.

Leveraging the power of GenAI models, Apple Intelligence aims to enhance user experience across iPhone, iPad and Mac by combining robust language and image understanding with personal context. This technology, powered by Apple silicon, promises to simplify and accelerate everyday tasks while maintaining Apple’s stringent privacy standards.

The Services business benefits from the growing demand for Apple TV+ content and the adoption of Apple Pay. It recently expanded Tap to Pay on iPhone to more markets, including the United Arab Emirates, Chile, Japan, Canada, Italy and Germany. Apple Pay is now available in countries like Egypt and Uruguay.

The expanding content portfolio for Apple TV+ is noteworthy.

Apple – China Headwind Makes the Stock a Risky Bet

Apple’s near-term results are expected to bear the brunt of the weakness in China. A delay in the launch of Apple Intelligence is a concern, along with reported bugs. A stretched valuation is a concern.

Currently, Apple carries a Zacks Rank #4 (Sell), which implies that investors should avoid the stock right now. 

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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