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iPhone Recovering Ground in China: Buy, Sell or Hold the AAPL Stock?
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Key Takeaways
AAPL saw over 8% China growth from April-June, its first gain there since Q2 of fiscal 2023.
Gains in China were driven by iPhone 16 Pro promotions and pricing.
Apple Intelligence expansion aims to boost Services revenue, which rose 11.6% in fiscal Q2.
China has been a tough market for Apple (AAPL - Free Report) over the past couple of years, primarily attributed to stiff competition from the likes of Huawei and Xiaomi. iPhone sales in Greater China decreased 2.3% year over year in the second quarter of fiscal 2025 due to competition as well as a lack of Apple Intelligence.
However, Apple has recovered some ground as per Counterpoint’s latest data. Apple saw year-over-year growth of over 8% for the period between April 1 and June 22, driven by strong promotion of iPhone 16 Pro and iPhone 16 Pro Max, as well as iPhone prices in May. It is the first time Apple has recorded growth in China since the second quarter of 2023. Huawei continued to maintain its lead with year-over-year growth of more than 12%.
China is an important market for Apple as the iPhone maker’s manufacturing is primarily concentrated in the country. U.S. President Donald Trump’s decision to levy tariffs on trade partners, including China, negatively impacts Apple’s supply chain. Tariffs are currently expected to have a negative impact of roughly $900 million in the third quarter of fiscal 2025. Apple expects gross margin between 45.5% and 46.5% for the third quarter of fiscal 2025 compared with a gross margin of 47.1% in the fiscal second quarter.
Can New Apple Intelligence Features boost Prospects?
Apple is seeing better iPhone 16 sales in regions where Apple Intelligence is available. Apple expanded the availability of Apple Intelligence with iOS 18.4, iPadOS 18.4, and macOS Sequoia 15.4 updates in new languages, including French, German, Italian, Portuguese (Brazil), Spanish, Japanese, Korean, and Chinese (simplified) — as well as localized English for Singapore and India — and are accessible in nearly all regions around the world. At the end of 2025, Apple Intelligence will be available in eight more languages: Danish, Dutch, Norwegian, Portuguese, Swedish, Turkish, Chinese (traditional) and Vietnamese.
At this year’s annual Worldwide Developers Conference, Apple announced new Apple Intelligence features like Live Translation, updates to visual intelligence, as well as enhancements to Image Playground and Genmoji. Shortcuts can access Apple Intelligence directly. Developers also get access to the on-device large language model, which is at the core of Apple Intelligence. The latest features are now available for testing and are expected to be generally available this fall with supported devices.
Apple is expanding Services with AutoMix and Lyrics Translation features in Apple Music. Sing will allow users to transform their iPhones into a handheld microphone for Apple TV, while preferred routes and visited places in Apple Map make navigation easier for users. Apple Intelligence is now getting added to Apple Wallet, and users can make purchases with Apple Pay. Powered by Apple Intelligence, Apple Wallet can now automatically identify, summarize and display order tracking details from emails sent from merchants or delivery carriers. Meanwhile, Apple Pay expands the ability to pay with rewards and installments to in-store purchases for added flexibility and choice.
The latest features are expected to drive Services revenues that grew 11.6% year over year in the fiscal second quarter. Apple now has more than 1 billion paid subscribers across its Services portfolio, more than double what it had four years ago. The expanding content portfolios of Apple TV+, Apple Music and Apple Arcade, as well as the growing user base of Apple Pay, have helped drive subscriber growth.
Apple’s Earnings Estimates Revision Trend Steady, Shares Down
The Zacks Consensus Estimate for Apple’s fiscal 2025 earnings has been steady at $7.11 per share over the past 30 days, indicating 5.33% growth from the figure reported in fiscal 2024.
However, Apple shares have declined 9.9% year to date (YTD), underperforming the broader Zacks Computer and Technology sector as well as AI peers, including Amazon (AMZN - Free Report) , Microsoft (MSFT - Free Report) , and Alphabet (GOOGL - Free Report) . Apple continues to play catch-up in the AI domain against the trio.
While the broader sector, Amazon and Microsoft shares have returned 7.8%, 9.9% and 6.5%, respectively, YTD, Alphabet dropped 8.8%.
Apple Stock’s YTD Performance
Image Source: Zacks Investment Research
AAPL stock is not so cheap, as the Value Score of D suggests a stretched valuation at this moment.
Apple is trading at a forward 12-month Price/Sales (P/S) of 7.51X compared with the sector’s 6.57X, Amazon’s 3.19X and Alphabet’s 6.14X.
Price/Sales (F12M)
Image Source: Zacks Investment Research
AAPL shares are now trading below the 200-day moving average, indicating a bearish trend.
Apple Trades Below 200-day SMA
Image Source: Zacks Investment Research
Conclusion
Although the Services business has emerged as AAPL’s new cash cow, we believe Apple Intelligence’s underwhelming performance is a headwind for its product business (iPhone, iPad and Mac). iPhone has a long way to recover in China, given the stiff competition. A stretched valuation is a concern for investors.
Image: Bigstock
iPhone Recovering Ground in China: Buy, Sell or Hold the AAPL Stock?
Key Takeaways
China has been a tough market for Apple (AAPL - Free Report) over the past couple of years, primarily attributed to stiff competition from the likes of Huawei and Xiaomi. iPhone sales in Greater China decreased 2.3% year over year in the second quarter of fiscal 2025 due to competition as well as a lack of Apple Intelligence.
However, Apple has recovered some ground as per Counterpoint’s latest data. Apple saw year-over-year growth of over 8% for the period between April 1 and June 22, driven by strong promotion of iPhone 16 Pro and iPhone 16 Pro Max, as well as iPhone prices in May. It is the first time Apple has recorded growth in China since the second quarter of 2023. Huawei continued to maintain its lead with year-over-year growth of more than 12%.
China is an important market for Apple as the iPhone maker’s manufacturing is primarily concentrated in the country. U.S. President Donald Trump’s decision to levy tariffs on trade partners, including China, negatively impacts Apple’s supply chain. Tariffs are currently expected to have a negative impact of roughly $900 million in the third quarter of fiscal 2025. Apple expects gross margin between 45.5% and 46.5% for the third quarter of fiscal 2025 compared with a gross margin of 47.1% in the fiscal second quarter.
Can New Apple Intelligence Features boost Prospects?
Apple is seeing better iPhone 16 sales in regions where Apple Intelligence is available. Apple expanded the availability of Apple Intelligence with iOS 18.4, iPadOS 18.4, and macOS Sequoia 15.4 updates in new languages, including French, German, Italian, Portuguese (Brazil), Spanish, Japanese, Korean, and Chinese (simplified) — as well as localized English for Singapore and India — and are accessible in nearly all regions around the world. At the end of 2025, Apple Intelligence will be available in eight more languages: Danish, Dutch, Norwegian, Portuguese, Swedish, Turkish, Chinese (traditional) and Vietnamese.
At this year’s annual Worldwide Developers Conference, Apple announced new Apple Intelligence features like Live Translation, updates to visual intelligence, as well as enhancements to Image Playground and Genmoji. Shortcuts can access Apple Intelligence directly. Developers also get access to the on-device large language model, which is at the core of Apple Intelligence. The latest features are now available for testing and are expected to be generally available this fall with supported devices.
Apple is expanding Services with AutoMix and Lyrics Translation features in Apple Music. Sing will allow users to transform their iPhones into a handheld microphone for Apple TV, while preferred routes and visited places in Apple Map make navigation easier for users. Apple Intelligence is now getting added to Apple Wallet, and users can make purchases with Apple Pay. Powered by Apple Intelligence, Apple Wallet can now automatically identify, summarize and display order tracking details from emails sent from merchants or delivery carriers. Meanwhile, Apple Pay expands the ability to pay with rewards and installments to in-store purchases for added flexibility and choice.
The latest features are expected to drive Services revenues that grew 11.6% year over year in the fiscal second quarter. Apple now has more than 1 billion paid subscribers across its Services portfolio, more than double what it had four years ago. The expanding content portfolios of Apple TV+, Apple Music and Apple Arcade, as well as the growing user base of Apple Pay, have helped drive subscriber growth.
Apple’s Earnings Estimates Revision Trend Steady, Shares Down
The Zacks Consensus Estimate for Apple’s fiscal 2025 earnings has been steady at $7.11 per share over the past 30 days, indicating 5.33% growth from the figure reported in fiscal 2024.
Apple Inc. Price and Consensus
Apple Inc. price-consensus-chart | Apple Inc. Quote
However, Apple shares have declined 9.9% year to date (YTD), underperforming the broader Zacks Computer and Technology sector as well as AI peers, including Amazon (AMZN - Free Report) , Microsoft (MSFT - Free Report) , and Alphabet (GOOGL - Free Report) . Apple continues to play catch-up in the AI domain against the trio.
While the broader sector, Amazon and Microsoft shares have returned 7.8%, 9.9% and 6.5%, respectively, YTD, Alphabet dropped 8.8%.
Apple Stock’s YTD Performance
Image Source: Zacks Investment Research
AAPL stock is not so cheap, as the Value Score of D suggests a stretched valuation at this moment.
Apple is trading at a forward 12-month Price/Sales (P/S) of 7.51X compared with the sector’s 6.57X, Amazon’s 3.19X and Alphabet’s 6.14X.
Price/Sales (F12M)
Image Source: Zacks Investment Research
AAPL shares are now trading below the 200-day moving average, indicating a bearish trend.
Apple Trades Below 200-day SMA
Image Source: Zacks Investment Research
Conclusion
Although the Services business has emerged as AAPL’s new cash cow, we believe Apple Intelligence’s underwhelming performance is a headwind for its product business (iPhone, iPad and Mac). iPhone has a long way to recover in China, given the stiff competition. A stretched valuation is a concern for investors.
AAPL currently has a Zacks Rank #3 (Hold), suggesting that it may be wise to wait for a more favorable entry point in the stock. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.