Apple earnings: Strong performance overpowers headwinds, and we raise our FVE
Our view of Apple shares.
Key Morningstar metrics for Apple
- Fair Value Estimate: $240
- Morningstar Rating: ★★
- Morningstar Economic Moat Rating: Wide
- Morningstar Uncertainty Rating: Medium
What we thought of Apple’s earnings
Apple AAPL‘s September-quarter results were strong, with revenue rising 8% year over year to $102 billion and gross margin expanding 100 basis points year over year to 47.2%. December guidance was even better, with double-digit revenue growth expected, as well as further gross margin expansion.
Why it matters: Exceptional iPhone revenue guidance of double-digit year-over-year growth for the next quarter well exceeded our model, and demonstrates strong uptake of the iPhone 17 family, including the new iPhone Air. We like that Apple is seeing strong growth even against headwinds out of China.
- Services revenue rose a strong 15% year over year, and guidance implies continuing momentum. Apple’s services business looks more secure after an antitrust remedy ruling for Google in September allowed the firm to continue paying Apple to be the default browser on its devices.
- Profitability continues to shine, even as Apple eats up additional tariff costs. We assess tariffs as a roughly 100-basis-point margin headwind to Apple, which makes its guidance to record gross margin in the December quarter all the more impressive.
The bottom line: We raise our fair value estimate for wide-moat Apple to $240 per share, from $210. We’re impressed by growth and profitability despite a slow artificial intelligence feature rollout, tariffs, and China headwinds. Still, we find the market’s valuation challenging.
- iPhone and services drive firmwide growth, and we expect a good year for iPhone revenue after a few years of lower growth. We expect services to continue growing in the low teens, especially with more conviction in the durability of payments from Google.
- We expect gross margins to continue marching upward, as Apple benefits from a higher mix of high-margin services revenue and commands pricing power in premium iPhone models. We also expect in-house chip development to continue enabling lower marginal product costs.
