Apple earnings preview as investors watch iPhone 18 demand and AI strategy

Apple reports quarterly results on Monday with investors looking for reassurance after a difficult month for technology stocks.

The company enters earnings in a different position from many of its largest peers.

Alphabet, Amazon and Meta have faced growing pressure over the cost of artificial intelligence infrastructure.

Apple has spent far less on AI data centers.

That has helped protect cash flow.

It has also created another question.

Can Apple remain competitive in AI without matching the infrastructure spending of its rivals?

The answer may become one of the most important parts of the company's earnings call.

Apple revenue is expected to reach about $113 billion

Wall Street expects Apple to report quarterly revenue of around $113.4 billion.

That would represent growth of roughly 11% from a year earlier.

Net income is expected to reach about $29 billion.

Analysts expect earnings of around $2 per share.

The iPhone remains the most important part of the business.

iPhone revenue is expected to rise about 15% during the quarter.

That would make smartphone demand one of the strongest contributors to Apple's results.

Services growth is expected to remain positive, although the pace may slow to below 10%.

The results will provide an early test of whether Apple's recent product cycle can support growth into the holiday season.

iPhone 18 demand will be closely watched

The iPhone 18 series has produced mixed early signals.

Global sales of the iPhone 18 Pro series were 3.1% higher than the iPhone 17 Pro series during the first three weeks after launch, according to Counterpoint Research.

China was the strongest market.

Sales there increased 29% from a year earlier.

The United States was weaker.

Sales fell 4%.

Japan declined 27%.

That geographic split matters.

China has been one of Apple's most challenging markets in recent years.

Stronger demand there would be positive.

Weakness in the US and Japan raises questions about pricing and upgrade demand.

Investors will therefore focus more on management guidance than on the initial launch numbers alone.

The foldable iPhone adds another growth story

Apple has also expanded its hardware lineup with the iPhone Duo.

The company's first foldable iPhone went on sale in October and quickly sold out in several markets.

Delivery times have stretched into January.

That suggests early demand is stronger than available supply.

The product is priced at $1,999 and targets the premium end of the smartphone market.

The foldable category is still small compared with Apple's traditional iPhone business.

But it gives the company another way to increase average selling prices.

It also gives Apple a new design cycle at a time when traditional smartphone upgrades are becoming less dramatic.

The challenge will be execution.

Reports of screen cracking have already led to replacement requests.

A successful launch could support premium hardware growth.

Quality issues could slow momentum.

Memory costs could pressure margins

One of the less visible risks this quarter is memory pricing.

The AI boom has increased demand for high bandwidth memory and server memory.

That has tightened supply across the broader memory market.

Smartphone and PC manufacturers are now facing higher component costs.

Apple is affected even though it is not one of the largest buyers of AI memory.

Rising DRAM and NAND prices can increase the cost of producing iPhones, Macs and other devices.

Analysts expect profit growth to slow to its weakest pace in six quarters.

That makes gross margin guidance important.

Apple has strong pricing power.

But even Apple cannot fully avoid a sustained increase in component costs.

Apple is taking a different approach to AI spending

The biggest strategic question remains artificial intelligence.

Microsoft, Alphabet, Amazon and Meta are spending hundreds of billions of dollars on data centers and AI infrastructure.

Apple has taken a more cautious approach.

The company relies more heavily on on-device processing and external AI providers.

This has helped Apple avoid the large increase in capital expenditure seen at its peers.

That strategy has looked attractive during the recent technology selloff.

Investors have punished several companies for rising AI spending and weaker free cash flow.

Apple has avoided much of that pressure.

Its shares have gained around 27% this year.

The company has also moved above Nvidia in market value.

The market is effectively rewarding Apple for financial discipline.

But discipline only works if the products remain competitive.

Investors want more clarity on Siri

Apple's AI strategy still lacks one important element.

A fully rebuilt Siri has not yet become a major commercial product.

Investors will want updates on the company's plans for a more capable assistant.

They will also watch how Apple integrates third party AI models.

One potential strategy is distribution.

Apple controls one of the world's largest software ecosystems.

It could allow AI companies to reach users through the App Store while Apple takes a share of the revenue.

That would fit the company's existing business model.

Apple would not need to build every AI model itself.

It could monetize access to users.

The approach could prove more capital efficient than owning large AI infrastructure.

But the company still needs to show that users see value in the AI features built into its devices.

John Ternus faces his first earnings test

The quarter will also mark the first earnings call led by new CEO John Ternus.

That makes management commentary more important than usual.

Investors will want to understand whether Apple's product and AI strategy changes under new leadership.

Ternus has spent much of his career on hardware.

He now needs to explain how Apple will compete in a market increasingly shaped by software and AI.

The company does not need to copy Microsoft or Google.

It does need to show that its more selective spending strategy can still produce growth.

What should investors watch after Apple earnings?

The first number will be iPhone revenue.

Strong holiday guidance would support the view that the iPhone 18 cycle still has room to grow.

The second will be margins.

Higher memory costs could reduce profitability even if revenue remains strong.

The third will be AI.

Investors will want evidence that Apple's lower spending does not mean slower innovation.

That is what makes this earnings report unusual.

Most Big Tech companies are being asked whether they are spending too much on AI.

Apple is being asked whether it is spending enough.

If Apple can show strong device demand while keeping capital expenditure under control, its strategy may look increasingly attractive.

If AI products continue to lag, investors may start to question whether financial discipline has gone too far.