Big Tech Earnings Loom, This Stock Faces Risk

Key Tech Stocks Set to Release Earnings

Markets are preparing for earnings reports from major technology companies, with updates expected from four stocks that make up approximately a fifth of the S&P 500’s total market value. These upcoming releases will likely shape investor sentiment over the next two trading sessions.

One of these companies, however, stands out due to its different approach compared to others in the AI space. Apple is set to release its earnings for the three months ending in June, marking its fiscal third quarter. Analysts anticipate revenue to increase by around 4% year-over-year to $89.2 billion, but earnings growth is expected to be only half that pace. This modest growth may not satisfy investors who are increasingly focused on artificial intelligence and related technologies.

Apple's Focus on Supply Chain Over AI

What is not expected to be a central topic during this earnings call is Apple’s capital spending plans, which are not heavily directed toward AI. Instead, the company is concentrating on realigning its supply chain by shifting some operations from China to India while increasing investments in the U.S. This shift has become a more pressing concern for investors than the company’s AI initiatives.

Neil Wilson, a strategist at Saxo Bank, notes that Apple is not as deeply involved in the AI narrative as companies like Amazon or Microsoft. Investors are more concerned about tariffs, supply chains, and issues related to China. So far, Apple’s AI efforts have not met expectations, and this quarterly report is unlikely to change that perception.

Apple has formed partnerships with OpenAI in the U.S. and with Alibaba and Baidu in China, but its overall capital expenditures are projected to reach only $12 billion this fiscal year. This pales in comparison to the $70 billion to $100 billion allocated by Amazon, Meta, Microsoft, and Alphabet for AI-related projects.

Investor Concerns and Market Performance

Investors have been less impressed with Apple’s performance this year, with the stock losing over 15% of its value, resulting in a loss of nearly $600 billion in market capitalization. Among the Magnificent Seven stocks, only Tesla has seen a steeper decline, with a drop of over 20%.

Instead of focusing on AI, investors are likely to scrutinize how tariffs will affect Apple’s cost structure and profit margins. In early May, CEO Tim Cook estimated that tariffs would cost the company around $900 million for the June quarter alone. Analysts at Bank of America predict this figure could rise to $1 billion for the three months ending in September.

The pressure on margins in Apple’s flagship iPhone business also highlights the company’s lack of progress in developing a successful consumer-facing AI tool. Its services division has also struggled to integrate new technologies effectively.

Future Outlook and Potential Acquisitions

If Apple’s fourth-quarter sales forecast falls short of the $97.6 billion anticipated by Wall Street, the stock could face an exaggerated reaction. New iPhone models, expected in September, might help boost holiday-quarter forecasts, but current consumer-spending trends are not favorable. The demand for devices without AI capabilities appears limited.

BofA Securities analyst Wamsi Mohan noted that changes in the iPhone form factor have historically driven higher replacement rates. He expects the slim iPhone to replace the Plus model from last year and be priced $100 higher than the previous version.

Looking ahead, J.P. Morgan predicts that Apple may launch a foldable iPhone in September 2025, but it believes the market for such a product will not take off until late 2027.

Despite its hybrid model, which relies on partnerships rather than massive capital outlays, Apple may need to consider a major acquisition to catch up in the AI space. Perplexity AI, a company valued at around $14 billion, is seen as a potential target. However, News Corp, the owner of Dow Jones, has sued Perplexity for copyright infringement and has a partnership with OpenAI.

Analysts believe that Apple may struggle to develop a competitive AI assistant internally and may need to acquire a company to accelerate its progress. Without a significant acquisition, Apple could be three or more years away from delivering a modern AI assistant, giving competitors a head start.

Apple has delayed an AI-powered upgrade for its Siri assistant, now expected in 2026. Analysts warn that if deadlines continue to slip, it could delay revenue opportunities and allow competitors to gain a larger share of the market.