Apple dips after ‘conservative’ outlook, analysts see AI feature roll out key to quarter upside

Apple’s (NASDAQ:AAPL) stock dipped about 2% premarket on Friday after the company’s fiscal fourth quarter results and outlook saw mixed reactions from analysts.

Morgan Stanley kept its Overweight rating on the stock, noting that the September quarter results and December quarter guidance provided something for both the bulls — better gross margins and Services acceleration — and the bears, implied build cuts in December quarter, leaving the debate little changed.

The firm has a $273 price target on the stock.

Analysts led by Erik Woodring said that shares are likely range bound in the near term but the downside is limited. They noted that consumer response to the phase 1 roll out of the company’s AI feature Apple Intelligence is key to the December quarter upside.

Outlook for the fiscal first quarter of 2025 was mixed, with revenue a bit lighter than Morgan Stanley/buyside expectations, however, gross margin is better than consensus, the analysts added.

The analysts believe that first quarter outlook reflects 3 million to 4 million iPhone build cuts, confirming their checks, but still expect iPhone revenue to be flattish in the quarter.

With confirmation of build cuts now behind them (and embedded in Street estimates), the downside is likely limited and the analysts want to be early to the iPhone 17 cycle.

Tonight’s results were admittedly mixed – September quarter revenue was lighter than our above-Consensus forecast,” said Woodring and his team in a note. They attributed the main reasons to lower iPhone average selling prices and slight Services underperformance.

However, the analysts noted that it was still seasonally better than the last two September quarters (off a tough comp), reflecting late cycle iPhone 15 strength.

Meanwhile, Seeking Alpha Analyst Uttam Dey had a positive view on the results. “Apple posted solid Q4 results to finish off the year beating top-line expectations, with solid 6% y/y sales growth in the iPhone pointing to sustained progress in demand for its smartphones,” Dey commented.

He noted that Apple’s fourth results were quite different from Samsung Electronics (OTCPK:SSNLF) third quarter results earlier this week, which showed the Korean smartphone maker was losing its early momentum in AI smartphones.

Dey added that Apple’s results are also early signs of how well received the iPhone 16 might be in the smartphone market, “signaling the iPhone upgrade cycle we’ve been waiting for is underway and should help investors cut through the noise.”

BofA Securities reiterated its Buy rating on the shares with a $256 price target, citing a multi-year iPhone upgrade cycle, tailwinds to gross margins and strong cash flows.

September quarter iPhone demand remained strong while Services revenue came in somewhat lower than BofA expected for the quarter (12% year-over-year), and for the guidance (13% year-over-year), said a team of analysts led by Wamsi Mohan.

The analysts noted that revenue guidance range for the first quarter of low-to-mid single digit year-over-year is fairly wide ($3B to $4B) due to uncertainty around — the impact of staggered rollout of Apple Intelligence, the impact of new product and feature launches in the December quarter, such as new Macs and hearing assist feature on AirPods.

The gross margin outlook of 46% to 47% suggests continued iPhone strength, and some cost efficiency (as components, ex-memory are favorable). The analysts view the revenue outlook as “conservative” and see the opportunity to modestly beat the fiscal first quarter.

The March quarter should continue to have strong gross margin on a higher mix of Services, according to the analysts.