Apple stock reached a new intraday high of $237.49 on October 15, but analysts are sounding a note of caution.
Google’s parent company, Alphabet (GOOGL) , is under intense regulatory scrutiny. U.S. regulators are zeroing in on Google’s deal with Apple (AAPL) to make its search engine the default on iPhones and other Apple devices.
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The arrangement has been a lucrative source of revenue for Apple. Google pays Apple between $18 billion and $20 billion a year, accounting for 14% to 16% of Apple’s annual operating profits, Bernstein said in a recent report, The Register reported.
But as the DOJ pushes forward with its antitrust case against Google, Apple’s financial stake in this partnership may be at risk.
“We believe there is a possibility that federal courts rule against Google and force it to terminate its search deal with Apple,” said Bernstein.
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Regulators argue that Google’s default status on Apple devices stifles competition by limiting other search engines’ opportunities. Should the DOJ win, it could restrict Google’s agreements, preventing exclusivity arrangements with Apple.
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Analyst says Apple could lose a third of Google revenue
Investment firm Jefferies warns that a DOJ victory could result in Apple losing a crucial revenue stream.
“The antitrust expert hosted by our US Internet team believes it could take 3 to 8 years to settle,” analyst Edison Lee wrote in a note, Seeking Alpha reported. “We estimate if AAPL loses 1/3 of GOOG revenue (U.S. only) as of FY28, our DCF will be ~8% (US$19) lower.”
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Lee, who has a hold rating on Apple, noted that while the revenue impact would only affect U.S. earnings, a ruling against Google in the U.S. could have a ripple effect globally.
This could prompt regulators in other countries to consider similar antitrust measures, potentially impacting Apple’s Services revenue from Google outside the U.S.
Apple’s Services segment reached a record $24.2 billion in its fiscal Q3, driven by strong cloud, payment, and advertising services performance.
Despite that overhang, Lee views the iPhone 16 and the upcoming Apple Intelligence rollout as more critical near-term drivers for Apple.
The iPhone remains Apple’s largest revenue generator, making up roughly 46% of the company’s total sales in the most recent quarter.
On Aug 1, Apple shared that the segment brought in $39.3 billion in the fiscal third quarter ending June 29, reflecting a 1% year-over-year drop but coming in above the $38.81 billion forecast.
Apple reported quarterly earnings of $1.40 per share, exceeding the consensus of $1.35. Revenue for the period totaled $85.78 billion, a 4.9% increase from the previous year. It exceeded the anticipated $84.53 billion and set a new record for third-quarter results, Apple said.
Analyst sees minimal potential for iPhone upside this holiday season
UBS sees limited opportunity for iPhone upside in Q3 and Q4, citing modest demand, thefly.com reported.
Tracking data across 30 regions shows shorter wait times for the iPhone 16 Pro—18 days in the U.S. and 17 in China, down from 20 and 21 days last year, UBS said in a research note.
UBS forecasts iPhone unit growth of 4% in September and 1% in December. The firm maintains a neutral rating and a $236 price target for Apple.
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Apple is expected to report fiscal Q4 earnings on Oct. 31. According to Zacks Investment Research, the consensus EPS forecast for the quarter is $1.54, while the reported EPS for the same quarter last year was $1.46.
Apple Intelligence is anticipated to launch later this month. The stock traded at $231.78 on Oct. 15 and is up 20.39% year-to-date.
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