Apple silences its critics with strong iPhone demand and blowout services revenue
Talk about a monster quarter. Apple delivered a great September quarter Thursday evening, even as iPhone supply was constrained by strong demand. The stock really got going after the company’s strong forecast for the holiday quarter. Revenue in Apple’s fiscal 2025 fourth quarter, which ended Sept. 27, rose 8% year over year to $102.47 billion, outpacing the $102.26 billion consensus estimate compiled by LSEG. Earnings per share of $1.85 increased 91% (or 13% when excluding a one-time charge in the year-ago period), exceeding the $1.77 consensus estimate, according to LSEG. AAPL YTD mountain Apple YTD Shares of Apple jumped as much as 5% in after-hours trading to around $285 before cooling off to around $278. The stock, which got off to a horrible start in 2025, has jumped roughly 30% in the past three months, as of Thursday’s close. For the year, it has gained more than 8% — and earlier this week, it joined the $4 trillion market cap club. Bottom line In addition to reporting a September quarter record for sales earnings and operating cash flow, the higher margin services segment set an all-time revenue record across all geographic regions. Overall, Apple set September quarter records in all regions – the Americas, Europe, Japan, and the rest of Asia-Pacific – except Greater China. While Greater China sales were down in the quarter, much of that was due to iPhone supply constraints. On the post-earnings conference call, CEO Tim Cook stated that he expects to see the region return to growth in the current quarter. Apple’s consolidated gross profit margin also exceeded the high end of management’s prior guidance, expanding by 70 basis points sequentially and nearly 100 basis points, or 1 percentage point, year over year, thanks to a favorable sales mix that came despite a $1.1 billion tariff-related cost headwind. Why we own it Apple’s dominant hardware and growing services businesses provide a deep competitive moat and plenty of bundling opportunities. Management’s net cash-neutral strategy provides confidence that free cash flow will continue to fund dividends and buybacks. Competitors: Samsung, Xiaomi, OPPO, Dell , and HP Inc. Most recent buy : April 8, 2014 Initiation : Dec. 2, 2013 While iPhone sales grew 6% to $49.03 billion, they did come up short of expectations. However, Cook noted that it was due to a lack of supply for several iPhone 16 models and newer iPhone 17 models, as demand is very strong. Perhaps most importantly, management guided current quarter (fiscal 2026 first quarter) revenue to be well above expectations, with Cook saying on the post-earnings conference call that December quarter revenue will “be the best ever for the company and the best ever for iPhone.” It’s clear the iPhone 17 is seeing a ton of demand – and the massive installed base of active devices, which did indeed hit a new all-time high, is driving continued growth in services. Given the iPhone momentum and management reaffirming that a new, smarter artificial intelligence Siri will debut in 2026, we continue to think that the best thing members can do with shares of Apple is “own them, not trade them.” We are, therefore, increasing our price target to $300 from $240. We are, however, maintaining our 2 rating, as we wait for a better price level to upgrade shares back to our buy-equivalent 1 rating. Products highlights Products revenue achieved a September quarter record, driven by growth in iPhones and Macs. While growing more than 5% to $73.72 billion, Product sales did miss expectations. Apple’s installed base of active devices reached yet another all-time high. It was a September quarter record for the iPhone despite supply constraints, as the device achieved September quarter records in Latin America, the Middle East, and South Asia. In India, iPhone sales reached all-time highs. It was an all-time high for the iPhone’s active installed base and a September quarter record for upgraders. Mac sales, driven by strength in MacBook Air, were up in all geographic segments, with CFO Kevan Parekh calling out strong double-digit growth in emerging markets. The installed base for Mac also reached a new all-time high, with nearly half of all buyers being new to the product line. Mac sales increased 12.7% to $8.73 billion in the quarter. iPad installed base also reached a new all-time high. September quarter record for upgraders, with over half of buyers being new to the product. Sales for the iPad were flat at $6.95 billion. Sales in the Wearables, Home & Accessories segment dipped slightly to $9.01 billion but beat estimates. They were driven by growth in the Apple Watch and AirPods, both of which saw their installed bases reach all-time highs. Apple Watch upgraders also set a new September quarter record. Services highlights All-time revenue record for the Services segment – up 15% in the September quarter to $28.75 billion. All-time revenue records were realized in advertising, App Store, cloud services, music, payment services, and video. All-time highs were realized for both transacting and paid accounts. Outlook Apple doesn’t provide formal guidance. However, we did get some exciting commentary about the current quarter. As Parekh noted on the call, this outlook assumed no change in global tariff rates or policies and no change in the macroeconomic outlook, which has been worsening. December quarter revenue is expected to increase 10% to 12% versus the year-ago period, a whole heck of a lot better than the 6% the Street was anticipating, according to LSEG. If realized, it would mark a record quarter for the company. iPhone revenue is expected to grow at a double-digit rate year over year, which would also amount to Apple putting up its best quarterly iPhone results ever. Mac sales are seen up against a difficult year-over-year comparison, given the launch of the M4 MacBook Pro, Mac Mini, and iMac in the year-ago period. Services revenue is expected to grow at a year-over-year rate similar to what Apple reported for all of fiscal year 2025, which was about 13.5%, ahead of the roughly 12% the Street was looking for, according to FactSet. Gross margin for the December quarter is expected to be between 47% and 48%, exceeding expectations at the midpoint, despite an estimated $1.4 billion tariff-related cost headwind. Operating expenses are expected to be between $18.1 billion and $18.5 billion, higher than expected; however, acceptable in our view as Apple is ramping up investments in artificial intelligence. Capital allocation Apple ended the September quarter with $132 billion in cash and marketable securities. Excluding debt, net cash was $34 billion. During the quarter, Apple returned $24 billion to shareholders, including $3.9 billion in dividends and equivalents and another $20 billion via share repurchases. (Jim Cramer’s Charitable Trust is long AAPL. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. 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