Select Page

Yes, it’s a Federal Reserve meeting week, but I expect Apple’s (AAPL) earnings report for its December quarter to be the big event of the week. With the potential to move the tech sector and the market.

Fed first. The Fed’s interest rate setting body, the Open Market Committee, meets and reports on Wednesday, January 31. The market expectation is NO NEWS. The CME FedWatch Tool, which calculates the odds of a Fed move by looking at prices in the Fed Funds Futures market, puts the odds of the Fed leaving interest rates unchanged at 96.7%. I think that’s about right. Before the beginning of its auiet period just about every Fed speech-giver emphasized that while the economy and inflation were moving in the right direction, and that while the next move would be to cut interest rates, talk of an interest rate cut now is premature. Even March, the Fed kept saying, was probably too early. (The CME Fed Watch Tool puts the odds of a cut at the March 20 meeting at near 50/50 at 46.2%.) There’s no Dot Plot update for the January meeting (next one is on March 20), so there’s not even much information to move expectations on interest rates. Wall Street will, of course, try to torture every phrase in the Fed’s press statement and in Fed Chair Jerome Powell’s comments to elicit any clues as to the Fed’s thinking. I just think the pickings will be mighty slim.

Not so for Apple where investors are looking for critical numbers on the December quarter and for important updates on the company’s plans. And watch out for guidance for 2024.

The actual numbers for the December quarter are a big deal for Apple stock in the short run. The company looks to be very close to reporting a fifth quarter in a row of declining iPhone sales, and a second consecutive holiday season with declining revenue. Wall Street is worried about iPhone sales, especially in China where the government has been putting in place security guidelines that are likely to have hurt Apple’s sales. There’s a good chance that Apple will report that revenue in China came in below expectations.

But what the company says about long-term issues will be even more important. Apple is perceived on Wall Street–and the perception is, I think accurate–to be years behind the competition in generative artificial intelligence and risks falling further behind as Microsoft, Amazon, Samsung Electronics, and Alphabet (Google) actually ship new AI hardware, software and services. Apple’s first new product category in nearly a decade, the Vision Pro headset, doesn’t address the company’s AI problem and that product shows no signs of being a real revenue driver for at least the next year and more. So what will Apple say about its AI plans, especially about its AI plans for the iPhone? Apple’s tools for generative AI-—when they launch—-will come nearly two years after ChatGPT started AI fever, about a year after Amazon announced its revamped Alexa and about a year and a half after Microsoft and Google debuted their new services. That’s a huge lag.

Apple plans to announce its AI offerings as part of its iOS 18 operating system at its Worldwide Developers Conference in June. The underlying work is being done on a large language model dubbed Ajax, which the company has been testing since early last year. Reports say that Apple is eyeing adding features like auto-summarizing and auto-complete to its core apps and to software such as Pages and Keynote. It also is working to bring AI into services like Apple Music. And Apple is planning a big overhaul to its digital assistant, Siri. For developers, Apple is working on a new version of Xcode and other tools that build in AI for code completion.

But Apple’s generative AI vision will take at least into 2025 to fully scale. And that’s while the company’s biggest smartphone rival-—Samsung-—is set to launch a Galaxy S24 line later this month that is all about new AI features.

Can Apple talk a good enough story to close some of the AI gap and avoid disappointing investors?

That’s a tall order. I would not be surprised to see Apple shares drop significantly after the February 1 report and conference call.

I’m looking for a chance to buy back into Apple at lower price sometime later in 2024. Buying on this disappointment might be early but it would be a place to start.