Apple (AAPL.US) has demonstrated strong performance in the stock market over the past few months, with optimism around the iPhone driving its shares to record highs. Investors will assess whether this enthusiasm is justified when the company reports earnings after the market closes on Thursday.

Since early August, Apple's stock has surged more than 30%, pushing its market capitalization from $3 trillion to $4 trillion. Robust sales of the iPhone 17 have bolstered investor confidence, alongside rising smartphone prices. According to Counterpoint Research, the iPhone 17 series saw a 14% higher sales volume in the first 10 days of its U.S. and China launches compared to the iPhone 16. This appears to confirm strong early demand—a critical factor given that the iPhone accounted for over half of Apple’s total revenue in the fiscal year ending September.

Over the past three months, expectations for Apple’s quarterly profit have risen by 7%, while revenue forecasts have increased by 4.3%. Randy Hale, head of equity strategy at Huntington National Bank, which manages $223 billion in assets, noted, "These upward revisions suggest analysts anticipate earnings beats, and Apple could have significant momentum for the rest of the year. But first, we need evidence of strong iPhone demand."

After a sharp decline in April, Apple’s stock has rebounded to new all-time highs. More importantly, this year’s progress may set the stage for two major developments: a foldable iPhone and enhanced AI capabilities. John Belton, portfolio manager at Gabelli Funds, which oversees $35 billion, said, "Apple’s stock performs best during iPhone upgrade cycles. Currently, growth seems driven by three factors: device replacements, higher prices, and upcoming AI features. This suggests the growth runway may be longer than previously thought, positioning Apple at a fundamental sweet spot."

**A Challenging Year** However, this optimism shouldn’t overshadow recent struggles. Year-to-date, Apple’s stock has risen just 7.7%, significantly lagging behind the Nasdaq 100’s 24% gain, and only turned positive for the year last month. Yet, this underperformance also means that if earnings impress, the recent rally could have further room to run.

Belton added, "If results exceed expectations, more investors may jump in, given the stock’s lagging performance this year. A well-executed AI strategy could unlock additional upside."

This is why bulls need confirmation that Apple’s products are entering an upgrade cycle. Last quarter, Apple posted its fastest revenue growth in over three years, partly due to strong iPhone sales. Last week, Loop Capital upgraded the stock to "Buy" based on this outlook.

Apple’s earnings come during a busy week for tech stocks. Microsoft, Alphabet, and Meta Platforms reported on Wednesday, with Alphabet rising post-market on better-than-expected sales, while Meta and Microsoft disappointed. Amazon and Apple will report on Thursday.

Yet, Apple stands apart among mega-cap tech peers. It trades at a higher valuation, grows more slowly, and has been less aggressive in AI investments—factors that explain its limited AI product offerings.

Apple’s recent rebound reflects heightened investor expectations. Its forward P/E of about 33x is well above its 10-year average of 22x, making it the second-most expensive stock in the "Magnificent Seven" after Tesla.

Compared to other big tech stocks, Apple’s sluggish growth raises valuation concerns. Analysts project revenue growth of 6.2% for the last fiscal year, with a similar pace expected in fiscal 2026—trailing the tech sector’s projected growth of over 14% in 2025 and 13.6% in 2026.

Belton remarked, "I’m not overly bullish on Apple due to its premium valuation relative to growth prospects, but it still deserves a place in portfolios. As long as earnings keep beating expectations, the stock can keep rising. Expectations are high—we’ll need to see if they’re justified."