Apple (AAPL) will release its fiscal Q2 2024 earnings this Thursday after the closing bell. The iPhone maker is the second-worst performing “Magnificent 7” stock of the year after Tesla (TSLA), which has rebounded after its earnings in late April.

Tesla headed into its Q1 confessional amid extremely low expectations, and the stock soared, despite missing on both the top and bottom line. Can the same tepid expectations help AAPL stock rally after earnings, just like Tesla? We’ll discuss in this article, beginning with a look at Apple's earnings estimates.

Apple Fiscal Q2 Earnings Estimates

Analysts expect Apple to report revenues of $90.6 billion in fiscal Q2 – a YoY fall of 4.5%. In the December quarter, Apple’s revenues rose 2% and beat estimates. However, this was preceded by YoY revenue declines in the previous four consecutive quarters – a rarity for Apple. 

During its Q1 earnings call, Apple said that it expects its total revenues as well as iPhone revenues to be “similar” to last year, after adjusting for the pent-up demand to the tune of $5 billion that it saw in the March quarter last year. So, analysts' estimates for Apple's Q2 revenues are largely in line with the company's guidance.

Meanwhile, markets are apprehensive about iPhone sales - especially in China. which is Apple’s second-largest market. The company is facing tough competition from Huawei, which survived a near-death scare following U.S. sanctions, and has since achieved a “chip breakthrough.” Some of Huawei’s smartphones directly compete with Apple's iPhone 15, and coupled with a slowing Chinese economy, that has been taking a toll on iPhone sales in the world's second-largest economy.

Apple’s earnings per share (EPS) is expected to fall by around 0.66% in the recently concluded quarter. While Big Tech peers like Alphabet (GOOG), Meta Platforms (META), and Amazon (AMZN) have embarked on massive (and well-publicized) cost cuts, Apple hasn’t been as aggressive with its cost cuts and hasn't resorted to mass layoffs. As a result, Apple hasn't seen the same kind of bump in its profits as some of its peers.

What to Watch in Apple’s Earnings Report

Apple’s commentary on its China business and the sales outlook for iPhones will be closely watched during the upcoming earnings call. Also, I would watch out for any comments on the sales numbers of Vision Pro that went on sale in February. The company’s commentary on artificial intelligence (AI) will also be crucial, especially as during the previous earnings call, CEO Tim Cook teased more details on its AI initiatives coming “later” in the year.

While that “later” is widely believed to be at the Worldwide Developers Conference (WWDC), which is scheduled for June 10-14, analysts might still probe management on how the company plans to add more AI features to its products.

Should You Buy AAPL Stock Ahead of Earnings?

Ahead of Apple’s fiscal Q2 earnings, Bernstein upgraded the stock from “market perform” to “outperform.” The brokerage believes the fall in Apple stock is overdone, and advised buying the dip even as it kept its target price unchanged at $195.

I would side with Bernstein analyst Toni Sacconaghi, and see Apple’s YTD underperformance versus Big Tech companies as a buying opportunity. While there are valid concerns over stagnant iPhone sales and a lack of other big growth drivers, AI-enabled handsets could help trigger a massive replacement cycle. In fact, JPMorgan (JPM) analyst Samik Chatterjee believes that AI could lead to a major iPhone upgrade cycle, like the kind we saw with 5G.

Notably, during its Q1 earnings call last week, Alphabet successfully dispelled fears that it is falling behind in its AI initiatives. Markets rewarded it with some “AI respect” and the company’s market cap soared above $2 trillion.

Apple is another Big Tech company that has yet to meaningfully participate in the AI frenzy. While Apple stock gained a cool 49% last year, it was the worst-performing Magnificent 7 stock. Overall, I would be a buyer of AAPL stock here given its reasonable valuations, and see a high likelihood of a post-earnings rally as the 2024 price action looks a little too pessimistic.