The U.S. Department of Justice (DOJ) has taken aim at Google, Alphabet’s (GOOG) (GOOGL) crown jewel, accusing it of using illegal practices to dominate the search market. The DOJ’s case centers on Google’s exclusive deals with device makers like the Cupertino-based tech giant Apple Inc. (AAPL) to ensure its status as the default search engine on smartphones and browsers. With the DOJ pushing for significant remedies, including potentially breaking up Alphabet, the future of its search dominance is under intense scrutiny.

Notably, court documents show that Google paid Apple up to $20 billion annually for search exclusivity, with Alphabet paying 36% of its Safari-originated search revenue. This accounts for only 6% of Apple's revenue, but nearly 20% of its operating profits, according to Jefferies analyst Edison Lee - who warns that Apple could lose a significant portion of this high-margin revenue if the deal is impacted by a potential Google breakup.

On a more immediate basis, Apple's much-hyped artificial intelligence (AI)-powered iPhone 16 launch last month has underwhelmed so far, keeping intense pressure on the tech giant ahead of its upcoming earnings report at the end of this month.

With that in mind, let’s take a closer look at AAPL.

About Apple Stock

California-based Apple Inc. (AAPL), founded in 1977, has become a tech giant that redefined consumer electronics with its iconic iPhones, iPads, and Macs. Apple boasts a staggering market cap of around $3.6 trillion, earning its title as the world’s most valuable company.

Part of the elite “Magnificent Seven” group of mega-cap tech stocks, Apple’s strength lies in its seamless ecosystem of hardware, software, and digital services. Fueled by a loyal customer base, it continues to shape the future of technology, setting trends that the rest of the industry follows.

Apple’s stock story this year has been nothing short of an underdog tale. After lagging behind its big tech peers earlier in 2024, Apple turned things around, surging 42% over the past six months - far outpacing the Magnificent Seven ETF’s (MAGS) 30% returns during the same period.

Now trading near its newly set record highs around $237.49, Apple has climbed an impressive 36.3% over the past 52 weeks. With a solid 22.4% YTD rise, AAPL is now closely tracking the broader S&P 500 Index’s ($SPX) healthy gain.

Apple has a decade-long streak of raising dividends, with the current $0.25 per share quarterly dividend yielding 0.42%. And in May, the company announced a $110 billion share buyback - the largest in U.S. history. In fiscal Q3 alone, Apple returned over $32 billion to investors, including $3.9 billion in dividends and $26 billion in share repurchases.

In terms of valuation, the stock is trading at 30.78 times forward earnings and 9.46 times sales - a premium to the broader tech sector, but roughly in line with its mega-cap peer Microsoft (MSFT).

For investors, Apple’s balance of shareholder rewards and solid market valuation makes it a steady player in a fast-evolving tech landscape.

Apple’s Q3 Beats Wall Street Projections

Following Apple’s fiscal Q3 earnings release on Aug. 1, the stock edged up in the subsequent trading session, defying a broader Wall Street selloff as the stock smashed past estimates. While revenue rose 5% year over year to $85.8 billion, EPS climbed 11% to $1.40.

Apple's product sales, making up 71.8% of total revenue, rose 1.6% annually to $61.6 billion. The iPad stole the show, soaring 24% to $7.2 billion thanks to the launch of new models after a two-year hiatus. On the other hand, iPhone sales dipped slightly to $39.3 billion, still powering 46% of the Q3 revenue. 

In the services segment, which makes up 28.2% of sales, revenue surged 14.1% to $24.2 billion, showcasing the strength of Apple’s ecosystem.

What’s the Forecast for AAPL in Q4?

As the clock ticks toward Apple’s Q4 earnings release next week on Thursday, Oct. 31, anticipation is building. 

Apple doesn’t provide specific forecasts, but the iPhone maker expects its Q4 revenue growth to mirror Q3’s steady year-over-year performance, with its services segment set to shine with double-digit growth. Gross margins are forecasted to hover between 45.5% and 46.5%, maintaining Apple’s strong profitability.

Ahead of the release, early numbers suggest that Apple’s iPhone 16 sales have not quite matched expectations. With no price increase, Apple hoped AI features would spark excitement and boost revenue. Yet, consumer interest in AI hasn't fully caught fire, as a CNET survey revealed just 18% of buyers see AI as a reason to upgrade.

Pre-sales reflected this lukewarm reception, with only 37 million units sold - over a 12% drop from last year’s launch. However, with expectations relatively low, unexpected strength in China could lead Apple to an earnings beat.

Analysts are expecting Apple to report Q4 earnings of $1.54 per share, with revenue at $94.23 billion.

Could the Google Breakup Hurt Apple?

The future of Apple’s lucrative search deal with Alphabet hangs in the balance amid the ongoing antitrust case. On Oct. 7, Jefferies analyst Edison Lee hit pause on his bullish outlook for Apple, downgrading the tech giant from “Buy” to “Hold” amid concerns over the potential impact to high-margin revenue.

At the center of the case are Google’s lucrative deals with Apple, which, if overturned, could take a serious bite out of Apple's revenue. Lee cautions that should the DOJ win, Apple could lose a third of its U.S. earnings from its partnership with Google by fiscal 2028, slashing Apple’s valuation by 8% - or roughly $19 per share.

That said, the case could drag on for years, and Lee remains cautiously optimistic about Apple’s near-term prospects. With iPhone sales still accounting for nearly half of Apple’s revenue, Lee believes the recent device launch and Apple Intelligence rollout will be much more relevant for shareholders right now. Still, the DOJ case casts a shadow, with Lee cautioning that if the U.S. wins, other countries might follow suit, putting more pressure on Apple’s global operations.

AAPL stock has a consensus “Moderate Buy” rating overall. Of the 32 analysts covering the stock, 18 advise a “Strong Buy,” four suggest a “Moderate Buy,” nine say it's a “Hold,” and one suggests a “Strong Sell.”

The mean price target for AAPL is $245.13, indicating an upside potential of 3.9% from current levels. The Street-high target price of $300, from analysts at Loop Capital, implies the stock could rally as much as 27%. 

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On the date of publication, Sristi Suman Jayaswal did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.