Apple Q1 Earnings Preview: Will AAPL Become a $3 Trillion Stock Again?

We have a flurry of tech earnings this week, and sector heavyweights like Apple (AAPL), Alphabet (GOOG), Meta Platforms (META), and Amazon (AMZN) will release their quarterly reports. The Fed’s first meeting of 2024 adds a little extra spice to this already earnings-heavy week, where almost a fifth of S&P 500 Index ($SPX) constituents will report their earnings.

While Apple stock gained an impressive 49% in 2023 - which was better than the 44% returns delivered by the Nasdaq Composite ($NASX), it was actually the worst-performing FAANG constituent of the year. The stock has continued to underperform in 2024, and is in the red even as fellow FAANG peers have risen and are trading near 52-week highs. Apple also lost its $3 trillion market cap – along with the crown of the world’s most valuable company – to Microsoft (MSFT).

Apple will release its fiscal Q1 2024 earnings report on Thursday after the bell. Here’s what markets expect from the Cupertino-based company’s upcoming earnings, and a look at whether AAPL stock can reclaim its $3 trillion market cap after the release.

Apple Fiscal Q1 Earnings Preview

In fiscal year 2023, Apple reported negative revenue growth in all four quarters. It was the first time since 2001 that the company’s revenues fell YoY for four straight quarters.  Apple’s commentary on the revenue outlook for the December quarter failed to instill confidence, either, as it forecasted revenues “similar” to the corresponding quarter last year. 

Consensus estimates call for Apple’s revenues to rise just under 1% in fiscal Q1 and 3.4% in the full year. However, analysts expect the tech giant’s earnings per share to rise 11.1% in the fiscal first quarter. Here’s what else investors should watch out for in Apple’s upcoming earnings.

• Commentary on the Chinese market: China is Apple’s biggest overseas market, but the country’s economy is currently going through a structural slowdown, which is a major risk for Apple. Furthermore, Apple faces tough competition from domestic Chinese smartphone companies like Huawei and Xiaomi. Incidentally, Huawei – whose operations suffered a near-death blow after restrictions by the U.S. – has bounced back with its competitively priced models. During the earnings call, watching Apple’s comments on the Chinese market will be crucial.
• Guidance: Apple stopped providing quantitative forward guidance with the onset of the COVID-19 pandemic in 2020. The company does, however, provide some directionality for the next quarter, and markets will watch these comments to gauge whether the company is turning around after disappointing topline declines in the last fiscal year.
• Update on Vision Pro: AAPL might also provide an update on the Vision Pro augmented reality headsets, with deliveries expected to commence next week.

AAPL Stock Forecast: Analysts Aren't Too Bullish

Notably, Apple faced three downgrades in January, which is a rarity for the company. Some Wall Street analysts are not too bullish on AAPL stock heading into the earnings report, either. 

Barclays – which downgraded Apple stock earlier this month – has reiterated its “underweight” rating on the stock, and believes that the iPhone maker might provide soft guidance for the March quarter amid weakening hardware sales. Baird and UBS expect Apple to beat estimates for the December quarter, but are cautious about the outlook for the March quarter.

Overall, Apple has a “Moderate Buy” rating from analysts, and the mean target price of $206.08 is only 9.1% higher than current prices. Among AAPL's FAANG peers, analysts are the most bullish on Amazon, and least bullish on Netflix (NFLX) - which hasn’t been able to win over stubborn bears, despite stellar subscriber growth in the last two quarters.

Can Apple’s Market Cap Surpass $3 Trillion Again?

Apple’s market cap is only a touch short of $3 trillion, and an earnings beat could help it reclaim that benchmark. That said, some believe that Microsoft could outpace Apple to remain the biggest company. A Reuters survey of 13 investors, strategists, and portfolio managers shows that all of them expect Microsoft to be more valuable than Apple in the next five years.

Notably, both Apple and Microsoft are credible contenders to become $5 trillion companies. While it might have looked like a pipe dream a couple of years back, even Nvidia (NVDA) now has a chance to join the club, given the fact that its market cap is now around $1.5 trillion - making it the fifth most valuable U.S. company.

As for Apple, the company will need to look for new opportunities to revive its growth. While it is betting on the Indian market, it might not fill in the void left by slowing sales in China. Similarly, from a product perspective, the new Vision Pro headset might not be the “iPhone size opportunity" that Apple so badly needs.