Apple delivers a nearly perfect quarter, with a CEO change and an AI update ahead
Apple reported a strong quarter on Thursday evening to cap off a busy week full of megacap earnings. Clearly CEO Tim Cook’s decision to announce his departure ahead of the announcement was a move to ensure the news did not overshadow the incredible results. According to LSEG, Apple’s revenue in the second quarter of fiscal 2026, which ended March 31, rose 17% to $111.2 billion; this was well above the $109.7 billion expected. Earnings per share rose 22% to $2.01, above estimates of $1.95, according to LSEG. AAPL’s 1-year mountain Apple 1-year performance In fact, this was the best March quarter in the company’s history, with Apple shares rising 4% to around $282 in after-hours trading. A close on Friday at this level would be very close to the record high in December. As a result, although Cook will remain in office for a while longer, it is clear that the new CEO Jon Ternus will inherit a very strong hand. Sales exceeded expectations in all product categories, with the exception of the highly profitable services business, where growth accelerated sequentially. Better yet, earnings growth has outpaced revenue growth as the company has been able to increase profit margins for both products and services above what the Street is looking for. Apple once again achieved its highest installed active device base of all time (over 2.5 billion) across all product categories and geographic segments. This is a big deal, because — while we’re still waiting to hear more about Apple’s Siri AI initiative, and Cook confirmed that a “more personalized Siri” is indeed coming this year — the opportunity for Apple to officially enter the generative/agent AI race is as strong as ever. Apple has chosen Google as its artificial intelligence partner. Cook also said, “We are also pleased with the work we do independently.” While services perform well above their weight class in terms of earnings thanks to a gross profit profile that is nearly double that of the product category, it is the installed base of active devices that represents the gateway through which these services can be sold. So the larger the installed base, the larger the addressable market for Apple’s highly profitable service offerings. Finally, regarding share buybacks, Apple’s board authorized another $100 billion buyback program and authorized a 4% increase in the company’s cash dividend payout. CFO Kevan Parekh said on the call: “We plan to continue our capital allocation philosophy of first making any investments necessary to support the business and then returning excess cash to shareholders over time. Net cash neutral has been a valuable framework for our capital structure. Since 2018, we have significantly rehabilitated our balance sheet and reduced net cash by over $100 billion. As we move forward, we no longer present net cash neutral as a formal target, and we are considering cash and debt independently.” “We will evaluate it.” We do not foresee this being an issue as management still views buybacks as a significant contributor to overall shareholder value creation. Why we have it Apple’s dominant hardware and high-margin services businesses provide a deeply competitive landscape and numerous packaging opportunities. Competitors: Samsung, Xiaomi, OPPO, Dell and HP Inc. Last purchased: April 8, 2014 Started: December 2, 2013 These results show once again why you shouldn’t try to trade in a consistently best-in-class name like Apple. You’ll own it in the long run. Despite all the concerns about tariffs, energy prices, and rising memory costs, which are perhaps the biggest hit to Apple’s margins, the team has done a great job of managing the crosscurrents. Of course, memory prices will continue to be a significant negative in the coming quarters, but we are confident that management will continue to navigate this environment effectively. We think the Iran war stock movement from the March lows can now be trusted. An artificial intelligence update expected later this year laid the foundation for stocks to reach new highs. We reiterate our $300 price target and equivalent 2 rating. CEO Transition Explaining why he chose now to announce his departure, Cook said it was the right time for several reasons. “First, our business is performing extremely well. The first half of this year was very strong, growing by double digits year over year. Second, our roadmap is incredible. Most importantly, we have the right leader ready to step into this role. As I’ve said before, there is no one on this planet I have more confidence in leading Apple into the future than John Ternus.” “John is a brilliant engineer, a deep thinker, a person of remarkable character, and a natural leader. I know he will push us to go further than we thought possible to deliver the best products and services to our users. I am so proud to call him a colleague and friend, and I will be even prouder to call him CEO of Apple. Over the coming months, John and I will work closely together to ensure this transition is completely seamless,” continued Cook. Cook plans to assume the role of chief executive on September 1. Ternus also joined this call. He said: “Having Tim’s trust and confidence means a lot to me. … As you know, one of the hallmarks of Tim’s tenure was his thoughtfulness, caution and discipline when it came to the company’s financial decision-making. I want you to know that, Kevin.” [Parekh] and I plan to continue.” Ternus added: “When I transition [CEO] Role in September, this is a particularly exciting moment for Apple. As Tim stated, we have an incredible road map ahead of us. “Although you can’t get me to talk about the details of this roadmap, suffice it to say that this is the most exciting time to develop products and services in my 25-year career at Apple.” Quarter review Products revenue rose 16.7% year over year to $80.21 billion in the second fiscal quarter, beating estimates of $78.21 billion. Similar to what we saw last time, the strength in hardware can be attributed to strong iPhone demand, where sales have nearly increased. Cook said during the call that the iPhone 17 series is the most popular in the company’s history. We’ve seen some forecasts that say Apple’s flagship product has missed out on sales. Growth in iPhone outpaced sales in all other product categories, from Mac to iPad to its Wearables, Home and Accessories business. The 5.7% increase in Mac sales included the MacBook Neo, a lower-cost laptop that aims to take share from Windows-based laptops and Chromebooks. This was up from an all-time high of 36.6% growth, which saw growth in the company’s first fiscal quarter jump just over 16% in the second fiscal quarter, with Apple’s revenue outlook for the current June quarter (the company’s third quarter of fiscal 2026) expected to grow 14% to 17% year-over-year, a much stronger forecast than LSEG’s forecast for growth of around 9%. consensus is at $102.93 billion at the midpoint, with the benefit from currency dynamics driving growth at a similar rate to what Apple just reported in the June quarter, just over 2.5 percent in the March quarter, according to FactSet (Jim Cramer’s Charitable Trust is long AAPL. See here for a full list of stocks.) 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