The One Thing Apple's Earnings Report Won't Talk About: The AI Disaster

Apple is bracing for a significant test as the company prepares to release its fiscal third-quarter earnings report this evening after the market close. The report lands just as the iPhone maker crossed the $4 trillion market capitalization threshold this week, buoyed by the launch of its newest product cycle and initial signs of recovery in iPhone sales.

Wall Street is setting a high bar for another robust quarter, with analysts collectively projecting approximately $102.25 billion in revenue and $1.77 in earnings per share (EPS). While the demand for the latest iPhone models appears strong, investors will be keenly focused on two key pressure points: the market reception to its new iPhone model and the company’s roadmap for Artificial Intelligence (AI) integration.

The iPhone 17 Momentum

The primary driver of the expected revenue beat is the sustained, robust demand for the new iPhone lineup.

Goldman Sachs projects a 10% year-over-year increase in iPhone product revenue to $50.8 billion, exceeding the market consensus of $49.8 billion. The firm attributes this to the strong appetite for the new devices and maintains a Buy rating with a $279 price target.

J.P. Morgan analysts noted that Apple is approaching this report with a "greater halo of positivity" than any time in the past year, reflecting an 8% increase in the stock price year-to-date. A counterpoint research data supports this optimism, indicating a 14% jump in iPhone 17 sales compared to the iPhone 16 during the first ten days of availability in both the U.S. and China. In addition, Bank of America is even more bullish, estimating that total iPhone unit sales will reach 57 million for the quarter, well above the market forecast of 54 million.

AI and the "Air" Model: The Investor Watch List

Despite the positive momentum, analysts highlight two critical areas of concern that could shape investor sentiment and the stock's performance going into the fourth quarter.

1. The Disappointing iPhone Air

The new iPhone Air model, which replaced the previous "Plus" model and offered a thinner, lighter design at a $999 price point, is under intense scrutiny.

Reports suggest the iPhone Air is not achieving the impressive sales figures initially hoped for. Reports from Japanese suppliers indicate Apple has dramatically cut component orders for the model, suggesting soft demand. Investors will look for specific commentary on product mix and margins, which may be impacted by the model’s underperformance.

2. The AI Roadmap

Apple’s perceived slow pace in rolling out meaningful AI features compared to competitors remains a drag on its long-term narrative.

Bank of America remains optimistic, raising its price target from $270 to $320 (a 19% upside) based heavily on the potential for massive AI-driven growth over the next five years. However, the market needs concrete evidence. Investors will look for executive commentary on future AI integrations and how these features will drive the next generation of product upgrades.

Services and China: The Growth Pillars

Beyond the hardware cycle, the Services division is expected to be a major growth engine, further diversifying Apple's revenue stream. Goldman Sachs projects Services revenue to climb by 13%, fueled by continued momentum in subscriptions like iCloud+ and AppleCare+.

Furthermore, the crucial Chinese market is showing signs of stabilizing. Melius Research believes Apple’s sales in China are poised for improvement in the near term, which could provide a significant boost. The firm also points out that the impact of tariffs, a previous concern for investors, may be less severe than anticipated.

With CFRA noting that Apple is in its best position in a year due to greater clarity on regulatory issues and tariffs, the stage is set for a high-stakes earnings report that will determine if the company can truly cement its return to peak performance.