This week is loaded with tech earnings, and Meta Platforms (META) and Microsoft (MSFT) will release their quarterly reports today, July 30, after the close of markets. Tomorrow, we’ll hear from Apple (AAPL) and Amazon (AMZN).

Apple is heading into the confessional as the second-worst performing constituent of the group. Tesla (TSLA), which is the worst performer of the group, failed to impress with its June quarter earnings, and CEO Elon Musk’s bold promises failed to overshadow the earnings miss.

As for Apple, the stock fell after the company’s fiscal Q2 release, despite posting better-than-expected earnings for the quarter. Could things be any different this time around? Let’s explore, beginning with the fiscal Q3 earnings estimates.

Apple Q3 Earnings Estimates

Analysts expect Apple to report revenue of $88.96 billion in the June quarter, 3.7% higher than the corresponding quarter last year. The Cupertino-based company guided for an annual revenue increase of “low to mid-single digits” for the quarter. 

I believe the consensus estimates might be a bit conservative considering the headwinds from a weaker dollar ($DXY). Moreover, reports suggest strong iPhone sales in China in May and June, which should help Apple report buoyant revenues for its fiscal third quarter. 

Consensus estimates call for a mere 1.4% year-over-year increase in Apple’s earnings per share, with analysts modeling a full-year increase of 5.3%.

What to Watch in Apple’s Earnings Call

Along with the headline financial numbers, I will watch for the following in the earnings call.

1. Guidance: While Apple stopped providing quantitative guidance in 2020, the company does provide some color on its outlook. During the earnings call, I will watch for guidance on the top line as well as gross margins.
2. M&A Strategy: While we shouldn’t really expect Apple to say anything concrete on M&A, I look forward to discussion on the possibility of an acquisition to complement the company’s artificial intelligence (AI) strategy. There have been rumors about Apple considering acquiring AI startup Perplexity, but the iPhone maker has generally not been as active in M&A as some of its Big Tech peers.
3. Apple Intelligence: I will watch for commentary on the launch of Apple Intelligence features in China. While Apple has partnered with Alibaba (BABA), which should help facilitate the release of these features in China, the deal is reportedly facing scrutiny in the U.S.
4. Supply Chain Strategy: With Vietnam now facing a 20% tariff and India faces 25% tariffs, I will watch for Apple management’s comments on the supply chain strategy. Notably, President Donald Trump has threatened to impose up to a 25% tariff on imports from India, which would hurt Apple as the country accounts for the bulk of iPhone shipments to the U.S. after Apple's supply chain tweaks.

Apple Stock Forecast

While Apple faced a flurry of downgrades in the first half of the year, some analysts have started to see value in the stock after the recent underperformance, and earlier this month, Jefferies upgraded it from an “Underperform” to “Hold,” while JPMorgan raised its target price from $230 to $250.

Still, Apple is rated as a “Strong Buy” or “Moderate Buy” by only 21 of the 37 analysts covering the stock as tracked by Barchart. 14 analysts rate AAPL as a “Hold,” while two rate it as a “Strong Sell.” Apple’s mean target price is $231.46, 9.6% higher than the July 29 closing price, while the Street-high target price of $300 is almost 42% higher.

Should You Buy Apple Stock Ahead of the Q3 Earnings Report?

I see the setup for Apple stock as reasonably positive ahead of the confessional, given its YTD underperformance versus Big Tech peers. Moreover, iPhone sales have picked up in China, which is quite reassuring as that market has been particularly challenging for Apple.

However, I believe that Apple is a show-me story for the next few months and the iPhone maker needs to convince markets that it still deserves to trade at premium valuations – at a forward price-earnings (P/E) multiple of around 30x to be precise.

Overall, while I expect to see an uptick in Apple following the earnings, I still don’t find it the kind of fascinating story as it was a few quarters back, as the company navigates headwinds on the macro, regulatory, as well as company-specific level, making its outlook the haziest it has been in years.