Apple (AAPL) Shares Surge After-Hours Despite China Weakness: Analysts Cite AI, Services Growth & Strong iPhone 15 Demand
Apple Inc. (AAPL) shares experienced a late-day surge during after-hours trading on Thursday, rebounding from early declines following the company’s third-quarter earnings report. While China revenue did show weakness, analysts and market watchers remained optimistic about the overall performance and the upcoming launch of iPhone 15 and AI-powered features.
Key Takeaways:
- Strong Third Quarter Results: Apple exceeded revenue and earnings expectations, with iPhone sales performing particularly well.
- China Weakness: Revenue in China fell 6.5% year-over-year, although this was partially attributed to a difficult comparison and the broader macroeconomic environment.
- Services Growth Fuels Optimism: Services revenue continued its double-digit growth trajectory, highlighting its potential as a key growth driver.
- AI-Driven Supercycle Anticipation: The upcoming release of AI-powered features in the iPhone 16, anticipated for mid-September, is driving investor enthusiasm.
- Positive Forward Outlook: Analysts remain bullish, with Wedbush maintaining an Outperform rating and raising its price target to $285, and Deepwater Asset Management expressing confidence in Apple’s future growth driven by iPhone, Mac, and iPad powered by Apple Intelligence.
A Closer Look at the Analyst Perspectives
Daniel Ives, Wedbush Analyst:
Ives labeled Apple’s third quarter performance "Gold-medal performance" and noted that revenue surpassed expectations, with iPhone sales exceeding the consensus. Despite the China weakness, Ives expressed confidence in a return to growth in the region in the September quarter.
He highlighted the strong growth in Services revenue, which he considers the "bedrock of growth" for Apple, and praised the healthy gross margin, attributed to increasing average selling prices.
Looking ahead, Ives expects AI technology to fuel a "supercycle" starting with the iPhone 16, generating substantial monetization opportunities across services and hardware.
Gene Munster, Deepwater Asset Management Managing Partner:
Munster emphasized the overall positive nature of the earnings report, highlighting Apple’s ability to beat both revenue and earnings expectations by a significant margin. He acknowledged the decline in China revenue but attributed it to a tough comparison and emphasized the stronger non-China performance, showing 7% growth compared to the overall 5%.
Highlighting the "active installed base" hitting a record high, Munster referred to Apple’s "flywheel" in full motion. He saw the company’s guidance as strong, signaling a positive outlook for the September quarter. Munster believes the upcoming iPhone 16, coupled with AI integration, will drive significant growth in FY25 and FY26.
The AI Factor and the iPhone 16
Apple management reiterated its previously stated timeline for the launch of AI features. The plan involves a staggered rollout, starting with developers, followed by a partial rollout of features like language capabilities throughout the year, culminating in ChatGPT integration by the end of the calendar year.
Both Ives and Munster are bullish about the potential of AI to unlock new levels of growth for Apple, particularly with the iPhone 16 serving as the launchpad. They anticipate significant monetization opportunities across both services and hardware, fueling a "supercycle" for the company.
Conclusion
While China’s economic slowdown did present a headwind for Apple’s third-quarter performance, the company’s overall strength, particularly in iPhone sales and its growing services business, has fueled optimism among analysts. The upcoming release of AI-powered features in the iPhone 16, coupled with a projected return to growth in China, has further strengthened the bullish outlook.
The combination of a strong existing product lineup, continued growth in services, and the anticipated success of AI integration positions Apple for continued growth in the coming years. Investors are eagerly anticipating the launch of the iPhone 16 and the subsequent adoption of AI-driven features, which could potentially mark a significant turning point for the tech giant.
