Key levels to watch before earning

NASDAQ Index, known to proxy Technology stocksUp 3% for the year to January 25. This is not a particularly strong performance, and represents a 10% decline. Apple Inc. NASDAQ: AAPLMore stock about it.

Apple today

$226.42 +3.64 (+1.63%)

As of 09:36 AM Eastern

This is a fair market price provided by Polygon.io. learn more.

52-week range

$164.07

▼

$260.10

Dividend yield

0.44%

P/E ratio

37.07

Price target

$238.05

After hitting a 52-week high of around $260 in December, sentiment has soured on the company’s stock. That bearish sentiment was put to rest when analysts at Jefferies Financial and Loop Capital downgraded AAPL stock.

However, not all analyst sentiment has declined. Bank of America NYSE: BACreiterated its buy rating and gave the stock a $253 price target. Wedbush’s perennial Apple bull Dan Ives reiterated his buy rating and his $325 price target for AAPL stock.

That adds intrigue, if nothing else, to Apple’s earnings report, which it will release after the market closes on January 30. What should you consider going into earnings?

Concerns about Apple stem mainly from concerns that the company’s iPhone sales will be soft in China. Many analysts point to increasing competition at the company’s premium price point. The argument is this: If you’re not winning the smartphone market in China, you’re not winning.

Wedbush’s Ives believes the negative sentiment is overblown. However, even he admitted that sales in China were likely to be “combined soft”.

For much of 2024, the bull case for AAPL stock centered around the idea that the company was launching its first iPhone with artificial intelligence capabilities, which Apple branded as Intelligence. This will be the first quarter when investors will see how successful the launch has been.

The direction of iPhone sales will become clear when the company reports earnings. But even with that, the fundamental issue for Apple comes down to innovation or the lack thereof. It has been almost 20 years since the company launched the iPhone. Analysts and investors who have grown accustomed to one company launching one must-have innovation after another are growing impatient.

The importance of the iPhone to Apple’s finances is hard to fathom. Iconic products account for more than half of the company’s revenue. However, investors know that the company’s services division is helping to alleviate that burden.

In the fourth quarter of the company’s 2024 fiscal year, services revenue is approximately $24 billion, approximately 27% of the company’s total. The services division includes Apple TV, which has become a significant player in the streaming market, with blockbuster hits like Ted Lasso and Severance keeping users on the service.

When you add in the company’s Wearables business, which includes the Apple Watch, the revenue number is around $32 billion. That’s still about 30% below the total for the iPhone, but it shows that Apple is able to add to its share of the stock.

As of January 24, AAPL was trading around $222 per share. This is down about 10% from the beginning of the year; It also places the stock at a critical support level that was held in both October and November 2024. Not only that, Apple stock is now inching closer to breaking below its technically important 200-day moving average.

If the stock breaks that support, it could test a new level of support around $206 or even drop down to $193. However, based on the Relative Strength Indicator (RSI), Apple stock is trading at oversold levels.

If Ives is right, and the company beats earnings estimates, AAPL stock is likely to bounce off that support level. Options activity suggests the stock could push to $250. This is about 5% higher than the current consensus estimate of around $238.