Apple (AAPL) will release its results for the first quarter of its fiscal 2025 on Thursday, Jan. 30. The company will likely report solid Q1 revenue driven by the initial demand for the newly launched iPhone 16. Continued strength in its Services segment will support its top line and overall financials, providing a steady stream of revenue that offsets fluctuations in hardware sales.

While the first quarter seems promising, the road ahead presents notable hurdles. Macroeconomic uncertainty and a staggered rollout of Apple Intelligence features could dampen iPhone sales in the coming quarters. If Apple’s forward guidance signals a potential slowdown, it could weigh heavily on the stock.

Apple Is Facing Multiple Challenges

Apple is currently confronting several challenges, including macroeconomic uncertainties, intensified competition in China, and the absence of compelling Apple Intelligence and generative artificial intelligence (AI) applications to drive near-term device upgrades. Apple stock may face downward pressure amid slower-than-anticipated iPhone sales and its high valuation.

Recent data from the research firm Canalys indicates that Apple is losing market dominance in China. According to the report, iPhone shipments in the region declined by 17% to 42.9 million units in 2024, resulting in Apple slipping to third place in market share.

This drop is partly due to the lack of AI-driven features in the latest iPhone models. This development is concerning as China is a significant market for the company and accounted for approximately 17.1% of Apple’s total revenue in fiscal 2024. However, Apple’s sales in the region have declined for two consecutive years. In fiscal 2024, sales in China decreased by 8% to $66.95 billion, following a 2% decline in fiscal 2023.

What to Watch for in Apple’s Q1 Earnings

Apple’s management forecasts year-over-year revenue growth in the low- to mid-single digits for the first quarter of fiscal 2025. Services revenue is expected to increase at a double-digit rate comparable to the growth reported in fiscal 2024.

In fiscal 2024, Services revenue grew by 13%, driven primarily by higher revenues from advertising, the App Store, and cloud services. During the fourth quarter of fiscal 2024, Services revenue reached a record $25 billion, marking a 12% year-over-year increase. The segment continues to witness strong momentum, supported by the growth of Apple’s installed base of active devices, providing a solid foundation for the future expansion of its ecosystem.

Apple has witnessed heightened customer engagement with its Services, with both transacting and paid accounts reaching all-time highs. Paid accounts achieved double-digit growth year-over-year, and paid subscriptions also expanded at a double-digit rate in Q4 of fiscal 2024. Apple boasts over 1 billion paid subscriptions across its platform, more than twice the number recorded four years ago.

Apple’s gross margin for the quarter is projected to be between 46% and 47% compared with 45.9% in the prior-year quarter. The year-over-year improvement reflects a favorable product mix.

At the same time, Wall Street analysts anticipate Apple to deliver earnings of $2.36 per share, representing an 8.26% year-over-year increase. Apple has exceeded analysts’ earnings expectations in the past four quarters, including a 10.07% beat in its previous quarter.

The Bottom Line on Apple Stock

The outlook for Apple appears favorable for Q1, driven by strong growth in its Services segment and demand for new products. However, the company’s stock may encounter challenges. Concerns regarding potentially cautious guidance amid macroeconomic uncertainty and weakness in China could affect market sentiment. The absence of advanced AI-driven features may also hinder iPhone replacement cycles, limiting short-term hardware revenue growth.

Nevertheless, the outlook is not entirely negative. Apple’s Services business is expected to provide continued financial support. The company maintains healthy margins, benefiting from a favorable product mix. At the close of fiscal 2024, Apple reported a substantial $157 billion in cash and marketable securities. Furthermore, it returned over $29 billion to shareholders in Q4, including $3.8 billion in dividends and equivalents and $25 billion through share repurchases. Strong operating cash flow suggests Apple is well-positioned to continue delivering higher returns to shareholders.

Wall Street analysts have assigned Apple stock a “Moderate Buy” consensus rating. The average price target of $241.94 indicates limited upside potential in the near-term from the current market price.