Apple silences its critics with strong iPhone demand and blowout services revenue
Talk about a monster neighborhood. Apple delivered a great September quarter on Thursday evening, despite iPhone supply being constrained by strong demand. The stock really took off 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, beating the $102.26 billion consensus estimate compiled by LSEG. According to LSEG, earnings per share rose 91% (or 13% excluding the one-time charge in the prior year) to $1.85, beating the consensus estimate of $1.77. AAPL YTD mountain Apple YTD Apple Shares rose as much as 5% in after-hours trading to around $285 before cooling to $278. After a terrible start to 2025, the stock is up nearly 30% in the past three months as of Thursday’s close. It has gained more than 8% for the year and joined the $4 trillion market cap club earlier this week. As a result, in addition to reporting September quarter records for sales earnings and operating cash flow, the high-margin services segment set all-time revenue records across all geographic regions. Overall, Apple set September quarter records in all regions except Greater China (the Americas, Europe, Japan, and the rest of the Asia-Pacific). Although major China sales were down this quarter, much of that was due to iPhone supply constraints. In the post-earnings conference call, CEO Tim Cook said he expects the region to return to growth this quarter. Apple’s consolidated gross margin also exceeded management’s previous forecast; It expanded 70 basis points sequentially and nearly 100 basis points, or 1 percentage point, year over year, driven by a positive sales mix despite $1.1 billion in tariff-induced cost volatility. Why we have it Apple’s dominant hardware and growing services businesses provide a deeply competitive landscape and numerous packaging 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. Last purchased: April 8, 2014 Started: December 2, 2013 While iPhone sales increased 6% to $49.03 billion, they fell short of expectations. However, Cook stated that this was due to a lack of supply for several iPhone 16 models and the newer iPhone 17 models because demand was so strong. Perhaps most importantly, management kept current quarter (fiscal 2026 first quarter) revenue well above expectations; December quarter revenue will be “the best ever for the company and the best ever for iPhone,” Cook said on the post-earnings conference call. It’s clear that the iPhone 17 is in huge demand, and indeed the huge installed base of active devices, which is at an all-time high, is driving continued growth in services. Given the iPhone’s momentum and management’s confirmation that a new, smarter AI Siri will debut in 2026, we continue to think the best thing members can do with Apple shares is “own them, not trade them.” Therefore, we are increasing our price target from $240 to $300. However, we maintain our 2 rating as we await a better price level to upgrade the shares back to our buy-equivalent 1 rating. Featured products Product revenue reached a record in the September quarter, driven by growth in iPhones and Macs. While product sales grew more than 5% to $73.72 billion, it failed to meet expectations. Apple’s number of active installed devices has reached an all-time high. Despite supply constraints, this was a September quarter record for the iPhone; The device broke records in the September quarter in Latin America, the Middle East and South Asia. iPhone sales in India have reached an all-time high. This was an all-time high for the iPhone’s active installed base and a September quarter record for upgraders. Mac sales increased across all geographic segments, driven by strength in the MacBook Air, with CFO Kevan Parekh noting strong double-digit growth in emerging markets. The Mac installed base also reached an all-time high; almost half of the buyers were new to the product line. Mac sales rose 12.7% to $8.73 billion this quarter. The installed base of the iPad also reached an all-time high. A September quarter record for upgraders, with more than half of buyers buying new. iPad sales remained steady at $6.95 billion. Sales in the Wearables, Home and Accessories segment fell slightly to $9.01 billion, but exceeded estimates. This growth was driven by growth in Apple Watch and AirPods, which both saw their installed bases reach all-time highs. Apple Watch upgraders also set a new September quarter record. Services highlights all-time revenue record in the Services segment; It rose 15% to $28.75 billion in the September quarter. All-time revenue records were broken across advertising, the App Store, cloud services, music, payment services and video. All-time highs were achieved in both traded and paid accounts. Outlook Apple does not provide official guidance. However, we received exciting comments regarding the current quarter. As Parekh noted on the call, this outlook assumed no change in global tariff rates or policies and a worsening macroeconomic outlook. According to LSEG, December quarter revenue is expected to increase 10% to 12% compared to the previous year; That’s much better than the 6% the Street was expecting. If realized, this would mark a record quarter for the company. iPhone revenue is expected to grow at a double-digit rate year over year; This means Apple has delivered its best quarterly iPhone results ever. Considering the launch of the M4 MacBook Pro, Mac Mini, and iMac last year, Mac sales appear to be doing well on a tough year-over-year basis in comparison. Services revenues are expected to grow at a similar rate to what Apple reported for its entire fiscal 2025, according to FactSet; that rate was about 13.5%, above the nearly 12% the Street was looking for. Gross margin for the December quarter is expected to be between 47% and 48%; This exceeds expectations at the midpoint, despite an estimated $1.4 billion in cost volatility related to tariffs. Operating expenses are expected to be higher than expected, between $18.1 billion and $18.5 billion; However, this situation is acceptable to us as Apple increases its investments in artificial intelligence. Capital allocation Apple finished the September quarter with $132 billion in cash and securities. Net cash, excluding debt, was $34 billion. During the quarter, Apple returned $24 billion to shareholders, including $3.9 billion in dividends and equivalents and another $20 billion in stock buybacks. (Jim Cramer’s Charitable Trust is long AAPL. See here for a full list of stocks.) When you subscribe to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trading alert before buying or selling a stock in his charitable foundation’s portfolio. If Jim talked about a stock on CNBC TV, he waits 72 hours after issuing the trading alert before executing the trade. THE ABOVE INVESTMENT CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY, TOGETHER WITH THE DISCLAIMERS. NO CIVIL OBLIGATIONS OR DUTIES EXIST OR SHALL BE RESULTING FROM YOUR RECEIVING ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTMENT CLUB. NO SPECIFIC RESULT OR PROFIT CAN BE GUARANTEED.
