Apple iPhone sales likely rose 3 percent in the key holiday period, the best growth in five quarters, but analysts expect a tough year for the company in China, where it faces regulatory headwinds and resurgent competition from Huawei.

Wall Street expects the company's latest flagship iPhone 15 to face stiff competition from Samsung's new Galaxy S24 packed with generative artificial intelligence features and a Huawei phone powered by a China-made chip.

Generative AI could become central to deciding who grabs the crown of the world's biggest company this year.

Microsoft edged ahead of Apple in the past few trading sessions with a $3 trillion valuation, and analysts expect it to cement that lead soon as it sells more AI-packed products.

While Apple shares climbed nearly 50 percent last year, they were still the smallest gainer among the so-called Magnificent Seven stocks.

Apple has been facing some headwinds in China, with the country's property sector grappling with problems, while officials in China have signaled that iPhones are out of favor in government offices.

IPhone shipments to China fell 2 percent in the December quarter, according to market research firm IDC, and analysts said Android phones are making a big comeback there, helped by Huawei's popularity.

"The iPhone faces structural challenges that will lead to a significant decline in shipments in 2024, including the emergence of a new paradigm in high-end mobile phone design and the continued decline in shipments in the Chinese market," Ming-Chi Kuo, an analyst at TF International Securities, said in a note.

The brightest spot in Apple's first-quarter results, scheduled for Thursday, is likely to be its services segment, which includes revenue from App Store, Apple TV and Apple Music.

Services segment revenue likely grew 12.5 percent in Apple's quarter ended December, according to LSEG data.

However, the App Store faces headwinds in Europe, where a new law will force Apple to allow developers to skip its payment systems, and paying commission to Apple, starting in March.

Overall, Apple is expected to report quarterly revenue edged up 0.7 percent, ending four straight quarters of decline.

But Bernstein analysts forecast iPhone sales will fall 3 percent in 2024, barely boosting overall revenue.

Apple's Vision Pro, its riskiest bet since the introduction of the iPhone more than a decade ago, went up for pre-orders in the US on January 19. Analysts do not expect it to be a meaningful revenue driver this year.

"Greater clarity on GenAI initiatives, a successful roll-out of the Vision Pro, and updated capital allocation policies have the potential to be catalysts for Apple over the next six months," CFRA Research analyst Angelo Zino said.