The NASDAQ index, which is known as a proxy for technology stocks, is up 3% for the year as of January 25. That’s not particularly strong performance, and it makes the 10% decline in Apple Inc. (NASDAQ: AAPL)stock more concerning.
Since hitting a 52-week high of around $260 in December, sentiment has turned sour on the company’s stock. That bearish sentiment was punctuated when analysts from Jefferies Financial and Loop Capital downgraded AAPL stock.
However, not all the analyst sentiment has been bearish. Bank of America (NYSE: BAC)reiterated its Buy rating and gave the stock a price target of $253. Perennial Apple bull Dan Ives of Wedbush reiterated his Buy rating and his $325 price target for AAPL stock.
That adds intrigue, if nothing else, to Apple’s earnings report, which it will issue on January 30 after the market closes. What should you be considering heading into earnings?
It’s Still About the iPhone
The concern about Apple stems largely from concerns that the company’s iPhone sales will be soft in China. Many analysts point to increasing competition at the company’s premium price point. The argument goes: if you’re not winning the smartphone market in China, then you’re not winning.
Ives of Wedbush believes the negative sentiment is overdone. However, even he acknowledged that sales in China were likely to be “mixed to softer.”
For much of 2024, the bull case for AAPL stock centered around the idea that the company was launching its first iPhone with artificial intelligence capabilities, which Apple brands as Apple Intelligence. This will be the first quarter when investors will see how successful the launch has been.
The direction of iPhone sales will become clearer when the company reports earnings. But even with that said, the fundamental issue for Apple comes down to innovation or lack thereof. It’s been almost 20 years since the company launched the iPhone. Analysts and investors who got used to the company launching one must-have innovation after another are getting impatient.
Services Is the Company’s Not-So-Secret Sauce
It’s hard to understate the importance of the iPhone to Apple’s financials. The iconic product accounts for over half of the company’s revenue. However, investors know that the company’s Services division has been helping take away some of that burden.
In the fourth quarter of the company's 2024 fiscal year, Services accounted for approximately $24 billion in revenue, which is about 27% of the company’s total. The Services division includes Apple TV, which has become a significant player in the streaming market, with blockbuster hits like Ted Lasso and Severance that have kept consumers on the service.
When you add in the company’s Wearables business, which includes the Apple Watch, the revenue number is nearly $32 billion. That’s still about 30% below the total for the iPhone, but it shows that Apple is worthy of being considered a sum-of-its-part stock.
AAPL Stock at Key Support Level Before Earnings
As of January 24, AAPL was trading around $222 per share. That’s down approximately 10% from the start of the year; it also puts the stock at a critical support level that held in both October and November 2024. Not only that, but Apple stock is now moving close to crossing below its technically significant 200-day moving average.
If the stock breaks that support, it could test a new level of support around $206 or even down to $193. However, based on the Relative Strength Indicator (RSI), Apple stock is trading at oversold levels.
If Ives is right, and the company beats earnings estimates, AAPL stock is likely to bounce off that support level. The Options activity suggests that the stock could push to $250. That’s about 5% higher than the current consensus estimate of around $238.
