Earnings Forecast | There is an urgent need for a “new engine”, Apple's Q3 profit growth may “stall”

The Zhitong Finance App learned that since this year, investors' attitude towards Apple (AAPL.US) shares has gradually become lukewarm. The consumer electronics giant will announce the results for the third fiscal quarter and the performance guidelines for the next fiscal quarter on July 31 next week. Whether market sentiment can be reversed will be revealed at that time.

Analysts surveyed by FactSet expect the Cupertino, California-based company to have Q3 earnings of $1.42 per share and sales of $89.1 billion. In the same period last year, Apple earned $1.40 per share and had sales of $85.78 billion. Wall Street's expectations showed that Apple's profit increased by only 1.4% year over year, and sales increased by 3.9% year over year.

For the next fiscal quarter, analysts forecast earnings per share of $1.65, an increase of only 1 cent over the same period last year; sales are expected to increase 2.9% to $97.67 billion.

As of press time, Apple rose slightly by 0.5% in overnight trading to close at $214.9. However, since this year, Apple's stock price has fallen by a cumulative total of 14.5%.

Next catalytic factor

The next major catalyst for Apple's stock price is likely to be the fall product line, which includes the iPhone 17 series. Apple usually holds an annual product launch in early to mid-September. However, analysts expect that this round of phone updates will only be a minor upgrade.

Prior to that, competitor Samsung Electronics had already released a folding screen smartphone on July 9, which attracted widespread attention; Google (GOOGL.US) will also host an event on August 20 to launch new Pixel phones, smartwatches, headphones, and other products.

Meanwhile, Apple's services business is under pressure — a court ruling limiting what it can charge. Furthermore, the pending ruling in an anti-monopoly case in the US may affect the lucrative cooperation between Apple and Google (Google as the iPhone's default search engine).

On Wednesday, Monness Crespi Hardt analyst Brian White said in a report to clients that Apple “is facing a host of worrying issues.” He specifically mentioned regulatory resistance and the impact of US President Donald Trump's trade policies. Despite this, White reiterated a “buy” rating for Apple stock with a price target of $245.

Last week, Goldman Sachs also expressed a positive opinion on Apple's Q3 results, saying that revenue and EPS are expected to exceed expectations, giving Apple a “buy” rating. The target price is 251 US dollars. Goldman Sachs said that thanks to the continued acceleration of App Store consumption growth, the revenue growth of the Apple service business will remain resilient, although opening up third-party payment channels has increased the uncertainty of the platform.

The bank said that in the next 12 months, the iPhone upgrade demand will be supported by two major factors: first, US wireless operators will increase their promotional efforts, and the other is product innovation, including changes in Apple's smart features and exterior design. However, the uncertainty of trade policies and tariffs, as well as the risk of Apple's advertising revenue, are still negative factors to be wary of in the short term.

Stock prices fluctuated in a range

White said, “Apple is facing a series of obstacles in the release of this earnings report.” These obstacles include “tariffs, setbacks in the field of artificial intelligence, economic challenges in the Chinese market, strict scrutiny of the App Store, and possible collateral effects of the US Department of Justice's ruling on Google's antitrust lawsuit (expected to be released at the end of August). Furthermore, Apple itself is mired in the Department of Justice's antitrust lawsuit.”

Earlier, CEO Tim Cook pointed out during an earnings call that the impact of tariffs in the second quarter was limited due to supply chain optimization, but he warned that future impacts are difficult to predict due to potential policy changes. Cook estimates that assuming the current global tariff rate remains unchanged, President Trump's tariffs will increase the cost by 900 million US dollars in the third fiscal quarter (April to June 2025).

Morgan Stanley analyst Eric Woodlin believes that until investors clarify a range of issues, Apple's stock price will be stuck in the $195 to $215 range. He pointed out that these issues include the prospects for service business growth, the impact of tariffs, and the Ministry of Justice's ruling on remedies in the Google antitrust case.

Woodlin rated Apple's stock as “overweight,” with a target price of $235.

The IBD MarketSurge chart shows that Apple stock is in the lower half of the 30-week consolidation range, with a buying point of $260.10. This is also the historical high that the stock hit on December 26 last year.

Furthermore, Apple's stock price is currently below the 200-day moving average, which is a negative sign.

Recently, Apple has come up with few highlights to make investors excited. What was announced at its global developer conference was lackluster, and analysts also said that Apple has lagged far behind in the field of artificial intelligence.