Apple earnings preview: Goldman says but the pullback on any weakness in stock

Apple's stock surged Thursday, fueled by a Bloomberg report claiming the tech giant plans a complete overhaul of their Mac line featuring new, AI-focused M4 chips. 

Apple’s shares rose more than 4% to above $175 per share. The stock price increase follows a significant downturn over the last couple of months, which has seen Apple fall to as low as $167.11 per share. The downturn was fueled by demand concerns, particularly in China, due to slowing iPhone sales.

However, the report from Bloomberg Thursday comes not too long before Apple's next earnings release on May 2, with analysts and investors eager to see if yesterday’s strong performance can be sustained.

Goldman sees a potential buying opportunity in Apple stock

According to a note from investment bank Goldman Sachs this week, “any weakness” in Apple’s stock potentially provides an entry point for investors. 

Ahead of the iPhone maker’s earnings release, Goldman said it expects Apple to deliver in-line F2Q24E results with $90.7 billion of revenue and earnings per share of $1.53. They estimate iPhone revenue of $45.9 billion, down 11% year-on-year, with the decline “driven by tough comps due to shipment pushouts into C1Q23 from factory shutdowns in late 2022.”

“The overall industry environment for smartphones and PCs is improving, which should be supportive for AAPL Product sales in C2024/25,” said Goldman Sachs. “We estimate F2Q24E Services revenue of $23.9 bn (+14% yoy) with growth driven by App Store (+11% yoy, per Sensor Tower), October 2023 subscription price increases, and installed base expansion.”

While the bank sees a risk to F3Q24E consensus revenue with guidance potentially missing, they state that “investor feedback would suggest that this risk is well understood with any weakness in the stock potentially being an entry point for AAPL given the underperformance year-to-date.”

They also see catalysts, including AAPL’s Worldwide Developers Conference (WWDC), a reveal of AAPL’s generative AI initiatives, new product launches (the iPad and Mac), and the iPhone 16 product cycle.

Overall, Goldman Sachs maintained a Buy rating on Apple shares (NASDAQ:AAPL), stating they believe that the market’s focus on slower product revenue growth “masks the strength of the Apple ecosystem” and the associated revenue durability and visibility. 

“Apple’s installed base growth, secular growth in services, and new product innovation should more than offset cyclical headwinds to product revenue, such as a reduced iPhone unit demand due to a lengthening replacement cycle and reduced consumer demand for the PC&tablet category,” argues Goldman. 

They also believe the company’s valuation is attractive relative to AAPL’s historical multiple and compared to key tech peers. 

“The durability of Apple’s installed base and the resulting revenue growth visibility from attaching more Services and Products is what underpins the recurring revenue - or Apple-as-a-Service - opportunity,” concluded the bank.