John Blank: AAPL Earnings Preview, Tim Cook's Final Call & What Investors Should Watch

highly anticipated report. Let's go through it. John Blank, chief equity Strategist economist, Zacks Investment Research Thank you so much for being with us. Apple the one mag seven name that's shining. Apple, the name that's crossed $5 trillion. The largest company, you know basically ever here and hitting new record highs while all the others falter. What is Apple doing right. And what are you expecting to hear tonight? Yeah. Nicole what we have here is a story of estimates from the covering analysts of Apple really raising their estimates on 2028. And all of the good news for 2028 is being priced in on the back end of that. So keep in mind this is not a 2027 story or 2026 story. This is a way out there. And the basic idea here is that they're going to have custom silicon and more of their their products. They're going to be able to price more of their products better, even in the face of all these hikes that we've seen in the chips. And they're going to bring in some service business on the other side of that. So this is the good news that, you know, the markets liked. I would point out that the stock is now at 38 times forward earnings for next year, which is super rich. And it wouldn't surprise me at all, Nicole, to see a sell the news event when any type of earnings come out even a beat. So because it's so frothy and valuation has run up, even if the news is a double beat, you would anticipate a sell off. Is that then a buying opportunity because you are focusing on the hardware, the components and the services strength in that segment too? Yeah. Look, the companies, you know, premier company, no one can argue with that, you know, but I can't argue with a $5 trillion market cap and a 39PE. So, you know, smart money takes profits on stocks like this and moves on. And there's a lot of stuff out there, 18, 19 times earnings. You got you got, you know, meta now in the 13, 14 times earnings. You know, so I think, you know in this environment, you take your profits and you let this stock settle back down and consolidate for a few months. So my, my view is, this leadership story is behind us and the smart money is going to get out, basically around this report when the liquidity shows up for the earnings. Let's talk about the transition to in leadership and why that's important now to, to transition into something more AI friendly. You have Tim Cook moving to the executive chairman role, John Ternus taking over the CEO role on September 1st. So this will be Tim Cook's last. Is there anything you expect to hear or, you know, is this a moment in time for you? I mean, someone who follows this a little more closely than I do. Yeah. What we need to hear is, you know, they're going to do what everyone thinks they're going to do, which is hand off really smoothly, keep the the share buyback programs in place. Talk about Apple intelligence, talk about the CapEx spending that they are planning to do, and basically convince investors that, you know, the safe pair of hands has been Tim Cook for so many years is going to stick around at the executive level, executive board level, and that this John Ternus handoff is going to be smooth. So, you know, this will be very choreographed, I would imagine. And this is, you know, two people who've worked decades for the same company together. So it shouldn't be a concern, but it will be interesting, you know, really, they often let products out in the, in the, in the fall, you know, a new Mac, you know, a new M5 chip, things like that are also on the table here. I would seriously doubt they would not announce in advance of the fall, but there will be analysts who maybe on the call, start to get into discussions with this company about what the product launch is going to be and how Tim's going to hand that off to, to the new CEO. Services gross margins are expected to stay elevated near 76.5%. That's been a a primary structural hedge against hardware input costs and pressures that the company has been facing. You noted some of the strengths that the company is seeing. I mean, you talked about, the MacBook demand remaining robust. Most likely wearables may continue to see some modest growth. IPad had some tough comps. And I think about what the company is doing right versus maybe the biggest headwinds of all, what are the biggest headwinds of all other than the valuation itself? You know, I think it's a product loyalty cycle. I mean, they've they've done 15, 16% earnings this year, which is peaks peak earnings for this company. And that means a lot. You know, they're very loyal brand loyal customers. So if they're all traded in their iPhones for an iPhone 17, if everybody's in on the MacBook pros because they got upgraded and you know, you get much smaller growth out of an iMac, that's a 6% annual growth rate or wearables, which are 5%. So the issue here is, you know, did the iPhone cycle for for trade ins, for new batteries, new cameras, new Apple intelligence features basically suck some of the demand out of the future. And that's really the issue for this company. Half the half the revenue. Nicole, is the iPhone. Understood. I mean we think about such intense demand. I'm sorry, competition from the likes of China and the other phone makers. And there was also, as I was looking at Qualcomm, just the smartphone market overall really has these ups and downs. And I mean, I know Apple had a lot of fanfare around the 17. But the smartphone market overall is a tough place to be. And from some of the Qualcomm numbers I was looking at didn't seem like necessarily robust growth going forward. Oh, it's actually the case. I mean, this is, you know, the story of customer loyalty to a to a system. I mean, anybody, including myself who uses a lot of Apple equipment, you know, there's there's an entire ecosystem that's built around interchangeability, these products. So it often is the case that Apple can ride through any cycle because of that loyalty. And, and the broader markets can turn down. This is certainly true for, for the laptop situation. I mean, Lenovo, HP, Dell, they're all actually seeing downturns in PC shipments when an Apple is not. So this is just another case where, you know, you just have a premier interwoven brand set of products and, and a brand that people love loyalty that's amazing and service that they make a lot of money on. And, you know, it's been bulletproof for a long time. And there's no reason not to think it's going to keep on going this way as an enterprise. You know, again, it's just one of these stories, Nicole, between what shares are pricing and what the story of the business is. And it's basically, you know, what I've been speaking to is just basically all the good news is priced in and the momentum has been run on this, this stock for some time. And the other thing that I point out here is, you know, the zero day to expiration options around stocks like Apple will push everything up, you know, and then get it beyond belief much, much more quick than before these types of instruments took place. So since 2022, this type of, you know, zero days to expiration option around an Apple is also making it look a lot more rosy than it probably is. And Polymarket is betting that Apple has an 82% chance of beating the estimates on earnings per share. I also saw that call she was talking about what Tim Cook will say. They had a 90% chance that he was going to talk about tariffs. Also manufacturing the new deal with Broadcom. That agreement is expected to exceed 30 billion its largest yet under the American manufacturing program. So we'll listen in to see what Tim Cook says on his last report here as the CEO before he moves to that executive chairman role. Thank you so much. It's great to see you. Joh