Apple Earnings Preview: Is AAPL Stock a Buy Ahead of the May 2 Report?

Stocks to buy

Down roughly 10% to start the year, Apple (NASDAQ:AAPL) stock investors remain on edge. The smartphone maker faces key challenges before their upcoming earnings report on May 2. Despite weakness in iPhone sales in China and regulatory scrutiny, price target of $225 from Wells Fargo (NYSE:WFC) shows room for positivity.

The company plans to showcase more of its generative AI features in its iOS. However, investors are worried about the costs associated with this AI rollout.

Apple investors also expect a significant May 7 event that could boost stock performance. Although the company has not disclosed any more specific information on the event, the public expects it could be a launch of new iPads. Apple has seen no updates on the said gadgets since 2022, and many are expecting news on this front.

Let’s dive more into what to expect with this upcoming report, and what investors will be watching.

Earnings Report and AAPL Stock

Seeing lower revenues in recent quarters, Wall Street’s expectations for Apple are not too high this time around. As actual results will be released on May 2, such forecasts and expectations could lead to significant price moves for AAPL stock.

If Apple exceeds expectations, the stock will go up. If it does not meet the forecasts, stock prices could decline precipitously.

However, Apple’s earnings per share may surprise to the upside. Experts anticipate that Apple will report $1.51 earnings per share year over year and revenue of $89 billion.

If these numbers are exceeded, and management issues strong guidance, the stock could head higher. Indeed, there’s plenty of pessimism baked into the company’s current estimates.

Over the past 30 days, the quarter’s consensus earnings per share estimate was revised higher by 0.38%. This indicates a collective reassessment by covering analysts, and suggests the market believes the company could be in line to report a beat.

50% Forecast for Vision Pro Cut

On the bearish side of the ledger, Apple recently reduced its shipment target for its Vision Pro by roughly 50%. Estimates dropped to approximately 500,000 units from the initial estimate of 800,000 units. A significant demand decline in the U.S. contributed to these cuts.

Apple may skip a second-generation Vision Pro in 2025, contrary to what analysts initially expected. Initially planning around 400,000 units in 2024, Apple raised its potential target before reducing it.

This product, which many saw as pivotal to the company’s success, appears to have become a niche offering that’s not seeing the kind of uptake many initially thought.

Sales Drop in China

Counterpoint Research recently reported a significant 19.1% decline in Apple’s iPhone sales in China during the year’s first quarter. This drop was attributed to intense competition from Huawei, which experienced a resurgence in its smartphone business.

The research also showed that over 69% of Huawei’s smartphone sales surge was driven by the launch of its newest Mate 60 model with advanced 5G tech.

Although sanctions have hampered its business, Huawei’s comeback is unprecedented, and it has become the fourth-largest smartphone maker in China alone. This puts pressure on Apple, which stands as the third-largest.

Ivan Lam, a senior research analyst at Counterpoint Research, stated that Huawei’s resurgence affected Apple’s sales, particularly in the premium segment. Replacement demand for Apple was also lower.

Lam suggested Apple might rebound in China with new color options, discounts, and AI features, which are expected at WWDC in June.

Stay Cautious With AAPL Stock

Regulatory challenges are clouding Apple’s outlook, and there’s plenty of demand-related concern in the market to justify a lower valuation.

Thus, even though AAPL stock is down this year, it’s a stock that could have even more downside in the coming months. I wouldn’t trade this stock at current levels and tilt slightly bearish over the near-term.

That said, I do remain a longer-term bull on Apple. So, the view for me is mixed. I think it’s possible to be bearish in the short-term and optimistic over the long-run.

Ultimately, if Apple does see its multiple decline to something like 20-times earnings (either via earnings growth or stock price pressure), this will be a stock to back the truck up on. Until then, I think investors can be patient with Apple.

On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Chris MacDonald’s love for investing led him to pursue an MBA in Finance and take on a number of management roles in corporate finance and venture capital over the past 15 years. His experience as a financial analyst in the past, coupled with his fervor for finding undervalued growth opportunities, contribute to his conservative, long-term investing perspective.

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