Apple Q2 Earnings Preview: US trade policy risks profit margins and China sales

Apple’s earnings tipped to grow but margin pressures build

Apple is projected to deliver adjusted earnings per share (EPS) of $1.617. Revenue is tipped at $94.29 billion, implying only marginal quarterly growth, as the company faces persistent headwinds from softer global demand, particularly in China. Adjusted net income is expected to come in at $24.34 billion. Encouragingly, Apple boasts a near-flawless track record of earnings performance, beating consensus expectations in eight of its past eight quarterly reports. Nevertheless, recent estimate revisions have been subdued, reflecting cautious sentiment from analysts.

Apple shares trade at a forward P/E of 28.8x, slightly elevated relative to historical averages but broadly in line with other megacap tech peers. Consensus sentiment remains positive: 60% of analysts rate AAPL a "Buy", with an average 12-month target price of $235.14, implying an 11.9% upside from the current price of $210.14.

US trade policy risks rising costs and weakening China sales

Apple’s Q2 earnings call is likely to be dominated by talk of supply chain resilience, amid growing fears over renewed US-China trade tensions. Donald Trump's recent comments on imposing a new round of tariffs — including a proposal for 60% duties on Chinese imports if reelected — have amplified concerns about Apple’s China exposure.

While iPhones and key Apple products were largely exempted from previous tariff rounds, the company remains highly dependent on China not only for sales but also for production. A fresh escalation could impact margins, sourcing costs, and potentially slow recovery efforts in a market already showing signs of fatigue.

China slowdown: a continuing trend

Even before the reemergence of trade war risks, Apple’s performance in China had been a growing worry. Sales growth in Greater China slowed materially over the past few years, with increased competition from domestic brands like Huawei, Oppo, and Xiaomi eating into Apple's premium market share. This is evident in recent quarters, where Apple’s YoY revenue growth trends have decelerated despite global stabilization. Apple’s sourcing strategy — including potential diversification away from China toward countries like India and Vietnam — will be a key focus on this quarter’s earnings call. However, given the complexity of its supply chain, any shifts are likely to be gradual rather than immediate.

Apple shares retrace but remain in a downtrend

Technically, Apple shares remain in a downtrend, with the stock carving out a clear pattern over lower-highs and lower-lows since the start of the year. Currently, price action is carving out an ascending triangle continuation pattern, suggesting the recent bounce is merely countertrend. A break above resistance at the 200-day moving average or resistance at $225 per share would be a bullish signal. Meanwhile, a break of upward sloping support would indicate a renewed downtrend, with key levels like $200, $190 and the YTD low of $170 possible support.

The implied one-day move post-earnings stands at 2.4%, suggesting moderate volatility expectations heading into the print.

^{(Source: Trading View)}
(Past performance is not a reliable indicator of future results)