Apple (NASDAQ:AAPL) stock may drift lower following its June quarter earnings, as analysts at Lynx Equity Strategies caution against overly optimistic expectations.
The stock has surged 31% over the past three months, significantly outperforming the Qs at 12% and SPX at 10%, largely due to better-than-expected China sales and a clear AI strategy.
However, analysts suggest that current high expectations for fiscal year 2025 are unrealistic.
"Since the WWDC event, the bulls raised FY25 expectations, in our view, to sky-high levels. The bulls' expectation of iPhone growth in the teens and overall revenue up double digits, we think is not realistic," analysts at Lynx Equity Strategies stated.
They further pointed out that, unlike the March quarter, where China sales exceeded downbeat expectations, the June quarter could see flat sales for Apple compared to strong gains for domestic brands.
Analysts at Lynx Equity Strategies also highlight potential issues with Apple's AI development compared to Google.
"Google's progress in LLM and internal silicon development is ahead of Apple. We are not surprised with Apple disclosure that Apple Intelligence was trained on Google's TPU," the analysts noted.
They believe Google's AI capabilities, particularly for Android, might outpace Apple's offerings in the near term.
Despite maintaining a $240 price target for Apple, analysts at Lynx are cautious about the immediate future. "When we raised our PT to $240 a few days after WWDC, we explicitly took the stance that at launch, the iPhone 16 would support only internally developed AI applications," they explained.
They now model revenue growth for FY25 and FY26 at approximately 7%, contrasting with more bullish estimates.
Overall, the firm advises caution, suggesting that as "bullish estimates are dialed down, we think the stock could drift lower." They recommend waiting for a better entry point to add to positions, reaffirming their long-term positive outlook on Apple's AI strategy while remaining prudent in the short term.