Apple is on deck to report third-quarter earnings. Analysts are focused on the company's AI initiatives and the upcoming iPhone 16.
Justin Sullivan/Getty Images; Jenny Chang-Rodriguez/BI
Investors are waiting on Apple to report its earnings for the third quarter.
The results, which will be released after the closing bell on Thursday, will be critical for the iPhone maker, which has struggled with weak demand and rising competition in China over the past year.
Still, analysts at multiple firms are still feeling optimistic for the company, given a slew of positive catalysts could be underway. In particular, Wall Street has its eye on growth in Apple Intelligence — the company's coming AI system — which is on the services side of its business, as well as demand for the iPhone 16.
Here's what Wall Street strategists say they expect to see from the tech giant for the third quarter.
iPhone demand is likely stabilizing in China, according to supply-chain checks Wedbush conducted in Asia. That could set up the company to initially ship around 90 million iPhone 16s, higher than the consensus of 80-84 million, analysts said.
Growth could also lie in Apple's AI initiatives, particularly with its partnership with OpenAI. Artificial intelligence incorporated into Apple products could add another $30 to $40 each share of Apple stock, Wedbush estimated.
"We strongly believe June will be the last negative growth quarter for China with a growth turnaround beginning in the September quarter. China remains the linchpin of growth for Apple and now this key region is set to see growth once against starting with iPhone 16 in our view," the firm in a note in July.
Wedbush reiterated its "outperform" rating on the stock and issued a price target of $275 a share, implying 24% upside.
Apple looks on track to pull slightly more revenue than initially expected — but investors will "mostly ignore" the earnings results and focus on guidance related to AI-enabled iPhones, revenue growth in China, and revenue growth on the services side of the business, BofA strategists predicted.
AI should also drive more Apple users to scoop up new iPhones, the bank predicted in a note.
"We see pent up demand and a meaningful number of older iPhones in the installed base, and the new AI features should help drive an upgrade cycle," it said.
Analysts reiterated their "buy" rating on the stock and raised their price target to $256 a share, implying 15% upside.
Apple could be fueling valuation growth through its huge stock buy-backs, as well as the company diversifying its product line and driving 'ecosystem lock-in,' such as by creating services like Apple Pay and Apple Care, Needham analysts said.
The company also appears to be "maximizing revenue per AAPL user," they added, pointing to the firm's multiple subscription services, like Fitness + and Apple Music.
Still, the company faces risks stemming from geopolitical tensions with China, and potentially weaker consumer demand as the economy continues to slow. iPhone users also aren't replacing their devices as frequently as they were before the pandemic, the firm noted, citing industry checks and conversations with former Apple employees.
Needham reiterated its "buy" rating on Apple stock and raised its price target to $260 a share, implying 17% upside.
Morgan Stanley's research team reiterated Apple as its "top pick", thanks to a large number of Apple users set to upgrade their devices. By the end of this fiscal year, there could be a record 700 million iPhones that are at least three years old, the bank estimated.
The promise of Apple Intelligence, meanwhile, could help the firm sell as many as 235 million iPhones over the 2025 fiscal year, followed by 262 million iPhones in the 2026 fiscal year, analysts said.
"Apple Intelligence is a clear catalyst for a multi-year product upgrade cycle," analysts added in a note. "Never in Apple's 40 year history has the iPhone installed base been so large (1.3b+ devices), replacement cycles been so extended (at 4.8 years), and a new technology been limited to such a small cohort of users (8% of the iPhone/iPad installed base) all at the same time."
The bank's research arm reiterated its "overweight" rating on the stock and raised its price target to $273 a share, implying 23% upside.
Apple is poised to lead tech firms in the consumer AI space, Oppenheimer said.
"We believe that Apple's introduction of Apple Intelligence will position the company as the leader in the consumer AI experience," strategists said in a note, adding that the company's AI initiatives could result in faster-than-expected revenue and earnings growth. "We believe the excitement over Apple Intelligence can potentially accelerate hardware replacement and enable market share gain for iPhone, iPad and Mac."
Analysts reiterated their "outperform" rating on the stock and raised their price target to $250 a share, implying 12% upside.
Apple's financials results will likely look better starting in the September quarter, with the company on track to see 9% revenue growth in 2025, the European bank said. But investors are still waiting for Apple Intelligence to roll out before sentiment improves.
Meanwhile, Apple's stock may not have much more room to climb, given how expensive shares are already priced, strategists added.
"While numbers finally moving higher and hope for the AI iPhone will help sentiment, we see less scope for upside with the stock at a 30x+ p/e multiple," Barclays said, referring to the stock's high price-to-earnings ratio. "We do not think the iPhone16/AI features will be enough to drive a meaningful enough upgrade cycle to justify the valuation."
The bank reiterated its "underweight" rating on the stock, but raised its price target to $187 a share, implying 16% downside.
