Apple’s growth, driven by upcoming product cycles and advancements in GenAI, could ease market concerns and positively impact Apple stock.
- Apple’s recent financial performance reflects modest growth, with hopes pinned on upcoming product cycles to buoy Apple stock.
- Despite strong performance in services, challenges persist for Apple stock, particularly with declining sales and lagging in GenAI.
- Market expectations for Apple remain cautiously optimistic, with potential for positive surprises pending the successful execution of new initiatives amidst external challenges.
In the quarter ending in December 2023, Apple (AAPL) delivered modest results, exemplified in a mere 2% increase in revenue compared to the same period in 2022.
Despite a slight uptick in iPhone sales during the quarter, a stronger upcoming sales cycle for the smartphone and Apple’s other products could benefit AAPL stock and improve investor and analyst perception.
Is The Next Cycle Coming?
There was disparity in how segments performed in the most recent period. While Services maintained a brisk growth pace, advancing by 11%, iPad and Wearables experienced declines of over 10%.
Meanwhile, Apple’s traditional products, the iPhone and Mac, stayed in the middle of the road, with the iPhone growing by 6%, driven by increased sales of Pro models, and Mac sales remained virtually flat.
Regarding the Mac, recent quarters have been challenging, with low revenues reflecting a challenging computer market and a loss of market share.
Apple’s Global Revenue From Sales of Mac Computers; Source: Statista
Although the outlook isn’t as bleak for the iPhone, there has also been a slight decrease in operating system market share over the past two quarters.
In a few ways, Apple runs a cyclical business. Sure, some customers are more enthusiastic about the brand and the technology, upgrading whenever there’s a new product release. But on average, upgrades tend to occur more often when the product becomes obsolete – i.e., after several years or when there’s a significant technological leap.
According to MacRumors data, the next generations of Apple products are expected to feature a neural engine upgrade that will enhance AI task performance. This should apply to both the iPhone and the Mac, with preliminary information suggesting that the M4 chip is slated for release by late 2024 or early 2025.
This could potentially boost AAPL stock
At the close of 2023, Apple saw a nearly 3% decline in net sales. The tepid performance has been embraced by the market, which now expects only 1% growth in 2024.
At the same time, market consensus foresees an improvement in gross margin, rising from 44.1% in 2023 to 45.8% in 2024, possibly driven by an increase in service revenue mix.
Expectations for 2025 are slightly more optimistic at a 6% revenue increase. That said, market expectations for Apple aren’t the most bullish, which could pave the way for the company to positively surprise in the coming years if new initiatives and AI advancements succeed.
On the downside, the DOJ-Apple case poses a risk, which could affect Apple’s financials (sales and margins) depending on how the situation unfolds. Other external factors, such as the global economy at large and competition in China, could also be bearish developments.
The Bottom Line
All told, Apple is currently facing challenges in achieving accelerated growth, which seems to be putting a lid on AAPL stock price.
Despite lagging in the GenAI arena, the company is making efforts to catch up and recover lost ground. Initiatives such as the new iOS and the M4 Chip could aid in a more positive sales cycle ahead.
(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content)
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