Despite iPhone's repeated poor performance in key markets such as China, Apple's second-quarter performance is still expected to show signs of stabilization, with investors closely watching the company's highly anticipated &#34;Apple Smart&#34; and hoping that AI will become a new driver for Apple's growth.Apple is set to release its third-quarter fiscal 2024 (second quarter of 2024 calendar year) earnings report after the US stock market closes on August 1st (early Friday morning Beijing time).The current consensus on Wall Street is that Apple's second-quarter GAAP revenue is $84.48 billion, a year-on-year increase of 3.3%. Considering that Apple has experienced revenue declines in five of the past six quarters, this growth is undoubtedly a positive signal.Wall Street also predicts that Apple's adjusted earnings per share for the second quarter will be $1.35, a 7.4% increase year-on-year, far exceeding the 0.7% in the first quarter. As the largest source of Apple's revenue, iPhone sales amounted to $38.95 billion, a 1.8% decrease year-on-year, significantly narrowing the decline compared to the first quarter (10.5% year-on-year decrease).JP Morgan expects that Apple's second-quarter iPhone and total revenue are likely to exceed market expectations, laying the foundation for entering an AI-driven replacement cycle. Apple is not only continuing its past success, but also actively laying out an exciting future driven by AI, which may push its stock price to new heights.In a research report released last week, analysts at JP Morgan, including Samik Chatterjee, included Apple in the &#34;Positive Catalyst Watchlist&#34; and projected that its stock price would rise to $245 by the end of this year and further to $265 by the end of 2025, representing increases of 12.4% and 21.6% respectively from Friday's closing price.<img src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/06650ebe-cbec-4019-bbec-48104ed08757.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/06650ebe-cbec-4019-bbec-48104ed08757.png"/><h2>Is the iPhone about to break out of its sales slump?</h2>Chatterjee believes that Apple's second-quarter revenue will reach $85.3 billion, with earnings per share of $1.38. iPhone sales are expected to reach around 44 million units, generating $39.9 billion in revenue, both exceeding market expectations.He stated that if iPhone sales and total revenue in the second quarter exceed expectations, this could alleviate investors' concerns about Apple's overvaluation.The slowdown in sales in the Chinese market has put pressure on Apple's stock price, but investment firm CFRA believes that the second quarter may mark the end of the decline in Apple's sales, followed by a recovery.In its latest outlook report, CFRA stated that Apple's fate in the Chinese market is &#34;undergoing a transformation,&#34; with price cuts driving an increase in iPhone shipments in China.According to analysts compiled by Visible Alpha, analysts expect Apple's sales in the Greater China region to decline by 2.6% in the second quarterHowever, CFRA stated that Apple is still in a revenue slump before the highly anticipated launch of the iPhone 16.<h2>Apple's Next Ace - AI, Where Is It At?</h2>It is worth noting that before the financial report was released, there were reports that &#34;Apple Intelligence&#34; would be delayed until October. This means that the iOS 18 and iPadOS 18 released in September will not have AI functionality, and the first batch of iPhone 16 models produced this year will also lack new AI features, which will only be available after the software update in October.Investors will closely watch Apple's response during the financial conference call held on Friday. Apple previously stated that these new features may help boost sales of the iPhone 16.According to media reports, Apple plans to launch the complete Apple Intelligence feature through multiple updates to iOS 18 from the end of 2024 to the first half of 2025. In addition to the iPhone and iPad, Apple Intelligence will also be integrated into Mac computers. Furthermore, Vision Pro is also being developed to be included in Apple Intelligence, but this device will be released later.<h2>What Does the Switching Cycle Initiated by AI Mean for Apple?</h2>Nevertheless, Chatterjee remains optimistic and expects Apple to maintain a dominant position in the AI-driven switching cycle, especially through the iPhone and overall revenue performance.<blockquote>We expect Apple to assure investors that the AI switching cycle will officially begin in the 2025 fiscal year (end of September) and accelerate further in the 2026 fiscal year.This cycle will be driven by revenue exceeding expectations in the 2024 fiscal year, providing a more solid starting point.</blockquote>Apple's large user base implies significant sales growth from the switching cycle.JP Morgan expects iPhone sales to reach a new high in the 2025 and 2026 fiscal years, even with a decrease in user switching frequency.Wedbush analysts state that the new iPhone switching cycle is expected to push Apple's market value to $4 trillion.Looking ahead to the next three quarters (fourth fiscal quarter), Chatterjee predicts Apple's revenue to be $95.5 billion, with earnings per share of $1.62, both higher than the general market expectations. Following a decline earlier this year, this forecast indicates that Apple's revenue is likely to achieve year-over-year growth for two consecutive quarters.<h2>Growing Presence of Service Business</h2>While the iPhone remains Apple's largest source of revenue, its service business is steadily growing at a high pace, accounting for over 26% of Apple's total revenue in the first quarter.Wall Street believes that in the near future, the service business is poised to become Apple's new growth engine.According to the consensus expectations on Wall Street, Apple's service business revenue in the second quarter may reach $23.96 billion, a year-on-year increase of 12.9%. JP Morgan believes that Apple's service business is expected to exceed market expectations.Counterpoint stated that the App Store, Apple Care+, Apple Music, and the bundled subscription service Apple One have brought Apple a turning point in growth. Coupled with the increasing dependence of Apple users on the iOS ecosystem, even if iPhone sales slow down, the service business will continue to bring in more revenue for the company

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Wall Street expects Apple's revenue to increase by 3.3% year-on-year in the second quarter. Considering that revenue has declined in five out of the past six quarters, this growth is undoubtedly a positive signal. Paying attention to the progress of Apple's smart devices, analysts predict that the second quarter may mark the end of the decline in iPhone sales. With AI driving a new wave of upgrades, sales are expected to rebound

- Apple's Q3 earnings report is eagerly anticipated, with a focus on the potential stabilization despite iPhone's struggles in key markets like China. Investors are eyeing Apple's AI ambitions as a growth driver.
- Analysts expect Apple to exceed market expectations in Q2 with iPhone and total revenue, setting the stage for an AI-driven upgrade cycle. The company's strategic focus on AI could propel its stock to new heights.
- While concerns linger over Apple's valuation, positive signals from Q2 earnings may alleviate worries. The upcoming AI features and a potential shift in China's market dynamics hint at a promising future for Apple.

Apple's turning point approaching? iPhone sales may see a significant slowdown in the second quarter, with AI triggering a new wave of upgrades