Apple earnings preview: iPhone sales, pricing in focus as CEO transition nears

Apple is set to report fiscal third-quarter earnings after the closing bell on Thursday, with investors looking for signs that strong iPhone demand can continue offsetting rising component costs as the company prepares for a leadership transition.

The iPhone maker enters the earnings report at a record high after reclaiming its position as the world's most valuable company from Nvidia.

Apple shares AAPL have gained nearly 25% this year, briefly pushing the company's market capitalization above $5 trillion and outperforming other members of the "Magnificent Seven."

Options markets indicate traders expect Apple shares to move about 4% in either direction following the results.

Based on Tuesday's closing price, that would imply a potential move above $352 or below $328 by the end of the week.

Visible Alpha estimates Apple will report fiscal third-quarter revenue of $103.2 billion, up 15% year over year, with earnings per share of $1.87, compared with $1.57 a year earlier.

LSEG data, meanwhile, forecasts revenue of $108.65 billion, representing 15.5% growth and the company's strongest fiscal third-quarter sales expansion since 2021.

iPhone demand remains key as pricing strategy comes under scrutiny

Investors will closely watch Apple's pricing strategy after the company kept iPhone prices unchanged despite rising memory and storage chip costs driven by AI data center demand.

While Apple raised prices for iPads and MacBooks last month to offset higher component costs, it avoided increasing prices on its flagship smartphone.

That decision helped the company gain market share as rival smartphone manufacturers passed higher costs on to consumers during a quarter when global smartphone shipments fell to their lowest level in 13 years.

According to Counterpoint Research, iPhone shipments rose 3% during the quarter, lifting Apple's global smartphone market share to nearly one-fifth.

Analysts expect iPhone revenue to increase 20.8%, marking the strongest third-quarter growth since 2021.

Mac revenue is projected to grow 8.7%, while iPad sales growth is expected to moderate to 5.2%.

Morgan Stanley recently raised its Apple price target to $364 from $360, saying investors may be underestimating the company's revenue potential as recent price increases help offset higher memory costs.

The brokerage added, "Apple's core product demand has been somewhat inelastic, with iPhone being the most inelastic product within Apple's product ecosystem, followed by Mac and then iPad."

It also said, "This generally means that recent price increases are unlikely to materially disrupt demand, especially considering supply challenges at peers."

AI, margins and pricing outlook remain in focus

Although Apple has benefited from avoiding the massive AI infrastructure spending undertaken by some of its technology peers, investors will be looking for commentary on future pricing and profitability.

Analysts expect profit growth to slow to 18.1% as gross margin eases to 47.9% from 49.3% in the previous quarter.

Some analysts believe Apple's ecosystem and customer loyalty could help the company absorb future price increases without materially affecting demand.

The company has already increased prices for Apple Music and its Apple One subscription bundle, while analysts also expect price increases when the next iPhone lineup is introduced, typically in September.

Tim Cook's final earnings call as CEO

Thursday's earnings call will also mark Tim Cook's final quarterly results presentation as Apple's chief executive before he steps down on Sept. 1 to become executive chairman.

John Ternus, Apple's head of hardware and a 25-year company veteran, will succeed Cook as CEO.

Investors are expected to seek further details from Ternus on Apple's strategy, particularly as the company continues to face questions about its artificial intelligence roadmap and the delayed rollout of its redesigned Siri.

Cook leaves the top role after 15 years during which Apple's valuation increased fourteen-fold, even as the company faced challenges in establishing major new hardware platforms beyond the iPhone and expanding adoption of products such as the Vision Pro headset.