Apple shares remain constructive despite valuation and margin risks

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Apple shares remain constructive despite valuation and margin risks

Apple guidance keeps investors cautious

Despite the impressive results, the market reaction after the report was negative due to more cautious guidance from management. For the quarter ending in September, Apple expects revenue growth of only 9-11% y/y, while the market had been looking for around 12%. The company forecasts iPhone sales growth in the mid-teens range and a gross margin of 47-48%. The main problem remains supply chain constraints, primarily a shortage of advanced manufacturing capacity for Apple Silicon, as well as rising memory costs.

That is why strong current demand has not yet fully translated into a higher revenue forecast. At the current price, AAPL is trading at a P/E of around 35, so any slowdown in growth or deterioration in margins is perceived particularly sensitively by the market.

AI strategy in China remains a key growth driver

One of the key potential drivers is Apple’s AI strategy, especially in China. According to Reuters, the company trained its own large language model for the Chinese market with support from Alibaba. This complements the previously agreed Qwen integration and potentially allows Apple Intelligence to finally launch fully on Chinese devices after passing local regulatory procedures.

This is especially important for Apple because Greater China remains one of the company’s largest markets: in the latest quarter, revenue from the region rose by 22.4% to $18.8 billion. A successful launch of the localized version of Apple Intelligence could strengthen the iPhone’s competitiveness against Huawei, Xiaomi and other Chinese manufacturers, although the timing and scale of the rollout still remain important factors of uncertainty.

Apple bulls face resistance near $308

At the same time, the market is becoming more cautious ahead of the next iPhone cycle. Jefferies recently downgraded AAPL to Underperform and cut its price target to around $264, citing the expected cancellation of the premium all-glass iPhone and rising component costs.

On the other hand, expectations remain for a September product lineup refresh, including a potential foldable iPhone, which could support the average selling price of devices, although the high price may limit mass-market demand. As a result, the fundamental backdrop for AAPL remains mixed: record revenue, strong iPhone sales, a recovery in China and AI development support the long-term growth story, while weaker guidance, a high valuation and margin pressure limit near-term upside potential.

AAPL bulls continue trying to recover lost ground, but so far they have failed to break resistance around $308. Nevertheless, the outlook for Apple shares remains constructive, and declines in their value still represent an opportunity to buy at lower prices, so a breakout above this resistance and a rise toward $312-314 should not be ruled out.

As I warned in Apple holds near $305 as strong earnings meet cautious outlook, a loss of support would lead to a decline toward $288-284, where buying may emerge.

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