The iPhone 17 range offers mixed performance
Apple reports its fiscal fourth quarter (Q4) results after the close on Thursday, and investors are eager for the first official sales figures for the iPhone 17 lineup. Analysts are reporting strong demand for the base iPhone 17 and Pro models, suggesting the core range is resonating with consumers looking to upgrade their devices.
However, the new iPhone Air has disappointed despite generally positive reviews from the tech press. The $999.00 device sits between the standard and Pro models with a thinner, lighter design but fewer features, a position that seems to have confused buyers rather than enticing them.
Apple has reportedly reduced component orders for the Air as demand falls short of expectations. The stumble raises questions about whether the company misjudged the market or simply priced the device too close to that of the more capable Pro models.
Despite the Air’s problems, overall iPhone sales are increasing year over year (YoY). If momentum continues through the crucial Christmas quarter, Apple’s annual revenue could finally surpass its 2022 peak after two years of essentially flat growth.
Design options and pricing strategy under scrutiny
​The iPhone Air represents Apple’s attempt to capture buyers who want a premium feel without pro-level features. At $999.00, it sits £200.00 below the Pro but £200.00 above the base model, creating a three-tier structure that may have cannibalized sales in both directions.
Reviews praised the Air’s lightweight design and improved battery life, but critics noted the absence of features like the telephoto camera and ProMotion display. For many buyers, the extra £200.00 for the Pro model seems justified given the lack of features.
Apple’s pricing strategy assumes that customers will pay a premium for the form factor alone. That calculation appears to have been off, particularly as economic pressures continue to weigh on consumer spending in key markets, including China and Europe.
The company may need to rethink its approach to mid-tier devices. Since the base and Pro models perform well, the Air risks becoming an unnecessary complication in an otherwise successful product line.
The services division is expected to record another record
While hardware sales grab the headlines, Apple’s services business continues to grow relentlessly and now accounts for more than 20% of total revenue. Analysts expect another record quarter, driven by subscriptions to Apple Music, iCloud, Apple TV+ and the App Store ecosystem.
Services have significantly higher margins than hardware, making the division crucial to Apple’s overall profitability. The growth here also demonstrates the company’s success in creating recurring revenue streams that reduce reliance on iPhone upgrade cycles.
​The division faces regulatory headwinds, particularly in Europe, where authorities are forcing changes to App Store policies. However, these challenges have yet to have a material impact on financial performance, and Apple has successfully navigated the new rules while maintaining its pricing power.
Investors will closely examine services growth forecasts. Any sign of a slowdown would raise concerns about whether Apple will be able to maintain its premium valuation if the iPhone business fails to reignite significant growth.
​AI strategy and guidance in the spotlight
​Thursday’s earnings call will provide an opportunity for Apple to explain its artificial intelligence (AI) roadmap following limited details shared in recent product launches. Investors want clarity on how AI features will drive update cycles and whether Apple Intelligence can match the capabilities of its rivals.
​The company has been relatively quiet on AI compared to peers like Microsoft and Google, taking a more measured approach that emphasizes privacy and on-device processing. This strategy may be prudent, but it also risks leaving Apple behind as competitors rush to incorporate generative AI into their product lines.
​Guidance for the Christmas quarter will be crucial given the mixed performance of the iPhone 17. Management typically offers a wide range, but any hint of caution could spook investors, who are already nervous about overblown valuations and slowing growth.
China remains a persistent headache
​Apple’s business in China continues to face headwinds due to intensifying local competition and broader economic weakness. Huawei’s resurgence has proven particularly challenging as the Chinese tech giant has regained market share in the premium smartphone segment.
The iPhone 17 launch in China was reportedly softer than expected, with discounts appearing earlier than usual to stimulate demand. This pricing pressure threatens margins and raises questions about Apple’s ability to maintain its premium positioning in the world’s largest smartphone market.
Geopolitical tensions add another layer of uncertainty. While Apple has avoided the worst of the US-China trade friction, any escalation could disrupt supply chains or trigger consumer boycotts that would be difficult to navigate.
​The administration’s comments on China will be carefully scrutinized for any signs of stabilization. A return to growth in this crucial market would significantly strengthen the bullish case for Apple stock, but further weakness could overshadow otherwise strong results.
Options market prices have significant volatility
​Options markets are pricing in a 3-4% move in Apple shares following Thursday’s announcement, reflecting high uncertainty around results and forecasts. This implied volatility sits above the stock’s historical average move, suggesting traders are bracing for potential disappointment.
​The elevated expectations are due in part to Apple’s recent share price strength, which has driven valuations to challenging levels. At roughly 30 times forward earnings, the stock offers little room for error even if fundamentals remain strong.
​Apple’s post-earnings moves often surprise to the downside despite strong results, as the combination of high expectations and inflated valuations creates asymmetric risk. Traders positioning for Thursday’s announcement should consider whether the upside potential justifies the volatility risk.
​For those looking to trade the announcement, understanding how to trade stocks in different account types can help manage risk and capture opportunities regardless of which direction the market moves.
​The valuation leaves little margin for error
Apple’s near-record valuation represents the biggest risk ahead of Thursday’s results. Despite strong fundamentals and a loyal customer base, the stock has limited upside if earnings simply meet expectations given current prices.
​The company trades at a significant premium to historical averages and the technology sector in general. This valuation reflects Apple’s quality and market dominance, but also assumes a continued acceleration of growth that may be difficult to achieve.
​Any revenue or forecast miss could trigger a sharp sell-off as investors rush out. The pattern has repeated itself several times over the past two years, with strong operating performance failing to prevent post-earnings declines.
​Conversely, if Apple delivers a genuine positive surprise (perhaps with stronger-than-expected services growth or a bullish commentary on AI), the stock could hit new highs. The asymmetry has a double effect, making Thursday’s announcement a pivotal moment for the stock’s near-term trajectory.
Broader implications for the market
Apple’s results will set the tone for earnings for big tech companies overall, particularly given the recent volatility around AI spending and growth expectations. A disappointment could reignite concerns about whether massive investments in AI will translate into revenue growth.
​The company’s performance also serves as a barometer of premium consumer spending globally. Weak iPhone demand would indicate that even wealthy consumers are pulling back, a worrying development for luxury goods makers and other discretionary names.
​Thursday’s announcement comes at a delicate time for markets, as investors weigh conflicting economic signals and try to assess the sustainability of the recent rally. Apple’s ability to deliver could prove critical in determining whether technology leadership continues or a broader rotation takes hold.
​Apple share price – technical analysis
​Apple’s recent breakout has finally seen it hit record highs, joining the $4 trillion valuations club. While the stock has taken longer to recover since April than most of the tech complex, the overall picture remains bullish once again. The price declined in October, but found support at $240.00 and the 50-day SMA. Near-term weakness around earnings may result in a retest of the previous December 2024 high at $260.00.
