Nasdaq 100 forecast: Where next for Apple stock ahead of Q2 earnings?

Key takeaways

• Apple expected to report second consecutive quarter of lower revenue and earnings
• Attention is on whether demand for iPhones and other hardware is on the road to recovery
• Wall Street hopes Q2 will be the trough and that Apple will return to growth from Q3
• Still, Apple is on course to report its first decline in annual sales and EPS in four years following a tough first half
• Apple stock is currently testing eight-month highs, but Wall Street sees limited upside potential from here

 

Apple stock: When are Q2 earnings?

Apple will release results covering the second quarter of its financial year after US markets close on Thursday May 4. A conference call is scheduled on the same day at 1400 PT (1700 ET).

 

Apple Q2 earnings consensus

Apple is forecast to report a 4.8% year-on-year decline in revenue in the second quarter to $92.6 billion, with diluted EPS expected to drop 6.1% to $1.43, according to consensus numbers from Bloomberg.

 

Apple Q2 earnings preview

Apple succumbed to the tougher environment in the last quarter, when revenue fell for the first time in three years as iPhone sales, which make up over half of all revenue, slumped while earnings declined as higher costs and spending hit margins.

This trend is set to have continued in the second quarter, with Wall Street anticipating demand for devices to remain under pressure. Product sales, encompassing everything from iPhones and Macs to iPads and wearables, is forecast to be down 7.2% year-on-year to $71.9 billion. That will be the result of a 3% fall in iPhone sales to $49.1 billion as supply-chain constraints, more challenging macro conditions and foreign exchange headwinds all continue to bite, albeit less than what we saw in the previous quarter. Analysts are also expecting much sharper declines in demand for iPads (-12.5%) and Macs (-25%), according to consensus figures from Bloomberg.

On a brighter note, services revenue generated from the likes of its App Store and array of services from Apple TV to Apple Music, is expected to rise 6.5% from last year to hit a new all-time record of $21.1 billion. Apple reached a milestone in the last quarter after announcing it had over 2 billion active devices for the first time, which is helping keep the momentum for its services division going even if hardware sales are being tested.

Notably, some analysts have warned Mac and services sales could miss the mark this quarter based on industry data. Data from IDC suggests Mac sales could be down as much as 40%, far sharper than what markets have priced-in, while consensus figures for services could also be threatened by weaker spending on advertising (although recent results from Meta and Alphabet suggest things are improving) and gaming.

Sales are forecast to fall in every single region this quarter, showing there is pressure across the board. China remains a central focus. Although the economy rebounded in the first three months of 2023 thanks to a rise in consumer spending after the abandonment of Covid-19 restrictions, Wall Street is still expecting revenue from the region to be down 6.3% in the period. Analysts currently think sales in China will come in flat in the current quarter before returning to growth in the second half of calendar 2023. There will also be a lot of interest around India, where Apple has recently opened its first stores in the country to spark hopes that sales to the growing middle-class can provide a major new catalyst over the coming years.

Costs and spending continues to rise at double-digit rates and hurt profitability, which is set to result in a second consecutive quarter of lower EPS. Operating expenses are forecast to be 10.6% higher this quarter and expected to tighten its margin to just 29.2% from 30.8% last year. Apple was more disciplined when it came to hiring during the pandemic compared to its over-zealous peers but may need to take more drastic action going forward, with signs it is already slowing down the pace of new hires. 

Importantly, the second quarter is expected to be the trough for Apple and the company is expected to return to mild growth in the third, with analysts pencilling-in 1.5% rise in revenue and a 1.4% increase in EPS as a result of stronger services revenue, milder declines in hardware demand and a slower increase in costs. Both measures are expected to accelerate in the final three months of the financial year, although Wall Street doesn’t think it will be enough to salvage its full year performance considering they anticipate annual revenue and earnings will fall for the first time since the 2019 financial year.

 

Where next for AAPL stock?

Apple shares closed at their highest level in over eight months last week at $169.70, making this the immediate upside target to capture. All three moving averages are trending upward and shares could eye a move above $170 if they can keep up the momentum, with the peak of $176 seen in both February and August 2022 then coming into the crosshairs.

The 42 brokers that cover Apple stock currently have an average target price of $171.30, implying they see limited upside from current levels even after inching-up their view in recent months.

With that in mind, let’s take a look at the downside potential. Notably, we have seen a bearish divergence versus the RSI over the past three months, with the stock having found higher ground while the indicator has fallen. The uptrend that can be traced back to early January suggests it could find some support around the $167 mark if it comes under pressure in wake of the results, although a slip toward the last lower leg at $163 is possible if the uptrend fails to hold. Any move below here opens the door to $160.

 

Nasdaq 100 outlook

You should also keep an eye on the Nasdaq 100 considering Apple makes up over 12.6% of the index.

The index broke out of range-bound trading late last week, when it closed at its highest level in over eight months at 13,246 before hitting some resistance yesterday. This is now the immediate upside goal before a larger jump to the August-peak of 13,667 is back in view.

On the downside, the index should find some support at the April-low at 12,725, which is also aligned with the ceilings we saw in June and September 2022 and again in February 2023. This is starting to line-up with the supportive uptrend that can be traced back to early 2023. A sharper drop could bring the 200-day moving average into play, which is currently aligned with the level of resistance seen between September and December. Notably, we have seen a bearish divergence between the index and the RSI over the past three months.

 

 

 

 

How to trade Apple stock