Apple, Inc.’s AAPL second-quarter results due Thursday will be used to gauge China’s softness, a bullish analyst said on Tuesday.
The Apple Analyst: Wedbush’s Daniel Ives maintained an Outperform rating and $250 price target for the stock.
The Apple Thesis: iPhone unit sales will be softer in China, with revenue potentially declining year-over-year, due to Huawei competition and a lackluster iPhone 15 upgrade cycle, said Ives in a note.
But the analyst sees light at the end of the tunnel. “The good news is help is on the way as we believe a pent-up demand cycle with an AI-driven iPhone 16 model on the horizon should enable Cook & Co. to return to growth again in China with tailwinds into FY25,” he said.
Ives said the Services business may have outperformed in the March quarter, and the segment remained the “Rock of Gibraltar for Apple.”
See Also: Everything You Need to Know About Apple Stock
Muted Outlook: CEO Tim Cook’s tone on the earnings call will be important, the analyst said. He looks ahead to a “cautiously optimistic” outlook around China longer term from Apple, while also not expecting any fireworks for iPhone unit growth in the region in the June quarter.
Ives models June-quarter iPhone revenue of about $35 billion and total revenue in the $80 billion range.
The analyst also expects Cook to shed more light on the broader AI strategy as the technology would be a game-changer for the Apple story over the coming years.
Bullish Bias: Despite the near-term softness, Ives said he is bullish on Apple due to:
- seemingly achievable 2024 iPhone estimates
- conservative 2025 estimates
- pent-up demand around an upgrade cycle potentially exceeding 270 million
- Services poised to grow by double-digit percentage
- AI finally coming to Apple, with an announcement likely coming at the Worldwide Developers Conference in June
- strong installed base with 2.2 billion iOS devices
“Our forest through the trees view on Apple is all about navigating this next 1-2 quarters and getting on to the other side of easier comps, AI announcement at WWDC, [a] stronger upgrade cycle for iPhone 16, and the monetization opportunity of the golden installed base in Cupertino,” Ives said.
“The Street is bracing for a brutal March quarter this week and soft June guidance which we believe could be the last few quarters of this growth storm as Apple starts to see a renaissance of growth heading into the September quarter and FY25.”
Price Action: Apple ended Tuesday’s session down 1.83% at $170.33, according to Benzinga Pro data.
Photo via Shutterstock
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