Apple's 11% Drop in 2025: Can Q1 Earnings Lift the Stock?

 

Apple's integrated ecosystem has long provided users with a seamless, enjoyable experience, fostering a loyal customer base. Over the past decade, Apple ($AAPL) stock has delivered an astounding return of 663.6%.

 

However, 2025 has seen a downturn for Apple, with the stock dropping 11.67% year-to-date, making it the worst performer among the MAG 7. This is significantly underperforming the S&P 500's 4% gain. Currently, Apple's stock price is just a few dollars away from its 200-day moving average—a key technical level that many traders regard as crucial for long-term price support. Todd Sohn, an ETF and technical strategist at Strategas Securities LLC, noted, "When you see a stock approach or break below this level, it shakes confidence in the stock's upward trend."

 

Not long ago, Apple was the most valuable company in the world. But this year, as its stock price continues to fall, Nvidia has surpassed Apple in market capitalization. The most important upcoming event for Apple is its Q1 earnings report for FY2025 (Q4 2024), scheduled for January 30. Historically, Apple's first fiscal quarter tends to be its strongest, driven by the launch of new iPhones in September. The performance of the iPhone 16 will be a key factor in determining Q1's success and setting the tone for Apple's stock performance in the months ahead.

 

 

On October 31, 2024, Apple posted a solid Q4, generating $94.9 billion in revenue, a 6% year-over-year increase. This was bolstered by a 12% increase in EPS and a slight improvement in its gross margin, which stood at 46.2%. These figures indicate that Apple has managed to maintain solid operations in the short term.

 

Q1 will be Apple's first earnings report since the significant CFO change last August, when Kaiwan Parekh took the reins. His first report will reveal whether the company is still on solid footing or facing potential challenges ahead.

 

Analysts are expecting Q1 revenue of $124.3 billion, adjusted revenue of $25.53 billion, and adjusted EPS of $2.35. One of the most crucial data points to watch in the upcoming report will be the gross margin, as it is essential for Apple's pricing power and operational efficiency. However, analysts have raised concerns about the sustainability of high margins, so the Q1 report will be closely scrutinized.

 

 

Last year, Apple's iPhone sales in China fell 18.2% in Q4. According to Counterpoint's monthly mobile sales report, Huawei led the Chinese market in Q4 2024, with Xiaomi and Apple trailing closely behind in second and third, respectively. The decline in the Chinese market caused a global sales drop of 5% for iPhones during the key holiday season. More concerning is a forecast from Jefferies analyst Edison Lee, who predicts that Apple's sales in China could fall by double digits in 2025.

 

This presents a major risk to Apple's Q1 revenue growth, as China has historically been a critical driver of the company's growth. With local brands like Huawei, Xiaomi, and Oppo increasing pressure, Apple's performance in China is a major concern.

 

 

Currently, Apple is taking a conservative stance on iPhone sales, with supply chain surveys indicating that 2025 shipments could fall 8-10% below market consensus. Even with the launch of the iPhone SE4 (expected around mid-2025), iPhone shipments are expected to decline by about 6% in the first half of the year.

 

Additionally, the upcoming ultra-thin iPhone 17 and the foldable iPhone, expected to enter mass production in the second half of 2025, might face difficulties due to design choices. These models would not support physical SIM cards, and since China currently does not support eSIM for phones, these design decisions could hinder their sales.

 

Although the ultra-thin iPhone 17 is expected to outpace the iPhone Plus in shipments, it is unlikely to significantly boost iPhone sales due to its high price and lack of meaningful user experience innovation.

 

Overall, iPhone shipments for 2025 are projected at 220-225 million units, below the market consensus of 240 million.

 

 

At Apple's WWDC this June, the company unveiled its "Apple Intelligence" feature, which was only rolled out in the U.S. in October. However, it has had little impact on iPhone sales so far. Lee and other analysts are concerned that Apple Intelligence may not be enough to drive an upgrade cycle or boost service revenue, which had been anticipated. A prior survey showed that most iPhone users had little interest in Apple Intelligence, aligning with supply chain data.

 

Apple's CEO Tim Cook recently stated that the company had never discussed monetizing this feature internally. Analysts had previously hoped that Apple Intelligence would drive service revenue growth, but that expectation has not materialized. As such, market optimism surrounding Apple Intelligence might have been overstated.

 

 

On January 21, a filing revealed that Nancy Pelosi, the "stock god of Capitol Hill," made significant tech stock trades—buying stocks like $GOOGL, $AMZN, $NVDA, but notably selling her Apple shares. The filing showed she sold 31,600 Apple shares on December 31, 2024. Shortly after, Apple's stock began its downward slide. Following Pelosi's actions, investors have been speculating whether this signals further declines for Apple.

 

 

On January 22, Jefferies analyst Edison Lee downgraded Apple's rating from "Hold" to "Sell" and lowered the price target from $211.84 to $200.75. Lee cited weakening demand for the iPhone and consumer disinterest in AI upgrades for smartphones as key concerns for Apple's upcoming earnings guidance.

 

UBS analyst David Vogt also lowered his iPhone sales expectations in early January and assigned Apple a "Neutral" rating with a $236 target price. He used the phrase "Winter is coming," drawing parallels to the challenges Apple currently faces.

 

Meanwhile, JPMorgan lowered its target price from $265 to $260, citing concerns about a strong dollar and limited demand for Apple products, especially in China. Analysts worry that Apple's high-end phones are unable to benefit from local government subsidies aimed at mid- and low-end devices.

 

 

Despite these concerns, Apple's stock could still rebound. If the Q1 earnings report, due on January 30, shows strong demand, there could be upside potential for the stock. However, with a forward P/E ratio of 30, Apple's earnings performance needs to significantly exceed market expectations to justify its high valuation.

 

Many analysts remain optimistic about Apple's future. Among the 51 analysts surveyed by FactSet, 32 recommend "Buy," 14 recommend "Hold," and 5 recommend "Sell."

 

Wedbush analyst Dan Ives maintains an "Outperform" rating on Apple with a price target of $325, representing a 45% upside from the current price of $223.83. He believes the market's panic and pessimism about Apple are overblown. "Yes, Apple's stock is expensive compared to historical standards, but the 300 million iPhones that haven't been upgraded in the past four years indicate that Apple is in the early stages of a massive multi-year upgrade cycle," he said.

 

Evercore ISI analyst Amit Daryanani also has an "Outperform" rating and a $250 target price, expressing optimism about the upcoming earnings report and expectations for iPhone sales to improve throughout the fiscal year.

 

 

So, is 2025 the beginning of a harsh winter for Apple, or will the company see a resurgence? The answer may depend on the Q1 earnings report on January 30. Apple's performance in this key quarter will likely determine the company's path for the remainder of the year. #aapl #apple #earnings