Apple Swings to Outperformer: Is It a Buy Ahead of Earnings?

Key Points

• The launch of DeepSeek's cost-effective AI model caused a significant market sell-off, particularly affecting tech leaders like NVIDIA on Monday.
• Apple's stock rebounded impressively, gaining over 7% on the week so far, showcasing resilience amid broader market uncertainty and fear.
• Apple's Q1 2025 earnings on January 30 are pivotal, with investors focusing on iPhone sales in China.

The release of DeepSeek’s cost-effective AI model sent shockwaves through the markets on Monday, hitting the technology sector, particularly AI and semiconductor stocks, hard. The Magnificent Seven stocks, often viewed as market leaders, came under significant pressure as the new AI model challenged their dominance and raised concerns about future capital-intensive investments. 

Among the most brutal hit was NVIDIA NASDAQ: NVDA, which shed nearly $600 billion in market capitalization. Yet, amidst this market-wide sell-off, Apple Inc. NASDAQ: AAPL stood out as an anomaly. The tech giant avoided the sell-off and closed in the green, outperforming both the broader market and its Magnificent Seven peers. By Tuesday, Apple’s momentum continued, with shares surging an additional 3.8% at the time of writing, bringing its weekly gain to over 7%.

This impressive rebound comes after a period of underperformance that saw Apple’s stock decline nearly 15% from its 52-week high in December 2024. With Apple reclaiming its previous support levels and showing renewed strength but still trading 8% below its all-time highs, is it time to invest in the tech giant?

Apple Rebounds After a Period of Underperformance

Apple began 2025 on a sour note, with shares underperforming as several challenges mounted. The stock fell almost 15% from its 52-week high, struggling while other Magnificent Seven members and broader markets made new highs following the Trump inauguration. A combination of negative factors fueled the sell-off.

Reports indicated a sharp decline in iPhone shipments, with a 17% drop for 2024 and a significant 25% fall in the fourth quarter, reducing Apple’s market share in China to 15%. This added to concerns over Apple’s ability to innovate, as the company has not introduced a significant breakthrough product in recent years. The Vision Pro, Apple’s latest offering, failed to meet sales expectations, further dampening sentiment.

Apple Finds Support and Outperforms

Despite the challenging start to the year, Apple has quickly rebounded. The stock found critical support near $220 prior to the DeepSeek announcement, and the subsequent market turmoil unexpectedly played in Apple’s favor. While other tech giants faced significant losses, Apple’s position in the AI landscape was reassessed positively. Investors speculated that cheaper AI technology from DeepSeek could benefit Apple by enabling more efficient AI applications in its flagship products, particularly the iPhone.

The result? Apple’s stock surged over 7% since the start of trading on Monday, far outperforming the Roundhill Magnificent Seven ETF NASDAQ: MAGS, which gained only 0.64% during the same period. The market’s optimism stems from the belief that Apple can capitalize on cost-effective AI advancements without requiring massive investments in AI infrastructure, potentially boosting profitability.

From a technical perspective, Apple has bottomed out. After retracing sharply to its $220 support level, the stock has rebounded toward $240, confirming a trend reversal. However, with Apple’s all-important earnings release on January 30, investors might need to remain slightly cautious as there appears to be a lot riding on the company's upcoming earnings release.

Upcoming Earnings: A Crucial Catalyst

Apple’s Q1 2025 earnings, set to be released on January 30 post-market, are expected to significantly influence the stock’s direction for the remainder of the quarter. Sentiment has turned increasingly bullish ahead of the release, with several analysts upgrading their ratings and price targets. Firms like TD Cowen, Wedbush, Bank of America, and Rosenblatt Securities have reiterated Buy or Outperform ratings over the past week, forecasting substantial upside.

For the upcoming earnings release, Investors should pay close attention to iPhone 16 sales, particularly in China, where the company has faced recent challenges. Another key focus will be Apple’s high-margin services segment, which has become a significant growth driver. Updates on AI initiatives could also provide insights into Apple’s future innovation potential, while gross margin trends influenced by the new M4 processors will shed light on operational efficiency. Forward guidance for upcoming quarters will be crucial, as will any comments on regulatory scrutiny, particularly around Google payments.

Finally, Apple’s approach to capital allocation, including stock buybacks and dividends, will significantly shape investor sentiment following the earnings report.