Michael Huber 
Apple defied the doom and gloom that had been building for weeks. Shares rose roughly 3% Thursday evening after the tech giant reported a slightly better-than-expected quarter. More importantly, guidance for revenue growth in the March quarter was much better feared. Revenue in Apple’s fiscal 2025 first quarter, which ended in December, grew 10% year-over-year to $124.3 billion – exceeding the LSEG estimate of $124.12 billion. Earnings per share increased 10% to $2.40, beating LSEG’s estimate of $2.35. Apple 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. There’s a reason it’s one of only two “own it, don’t trade it” stocks in the portfolio. Competitors: Samsung, Xiaomi, OPPO, Dell and HP Inc. Most recent buy : April 8, 2014 Initiation : Dec. 2, 2013 Bottom line Did the Apple quarter have some hair on it? Sure. iPhone sales were a little light and revenue in China missed by more than $2 billion. However, nothing was truly thesis hurting with strength in other products, other regions — and, most importantly, within services which also contributes to the margin expansion story. The main bear case coming into the print was that Apple’s quarter would be fine but then guidance was going to be horrible and future quarter estimates would move much lower. Yes, lower even though forecasts have been revised down already. Some may tweak the numbers down but we shouldn’t see aggressive cutting. Apple’s not out of the woods, yet. It’s too hard to predict how the company will fare in the second half of this calendar year, but the outlook given should calm a lot of fears. The early stage of Apple Intelligence has its critics, but you can’t deny the record upgrades Apple had in the quarter and the outperformance year over year in markets where these new AI features are rolled out. These are very encouraging data points for the future that bulls will hold onto. It may still be too early to know exactly how DeepSeek’s low-cost, efficient AI model will impact Apple. Apple shares were up more than 6% as of Thursday close on the idea that more efficient AI models may make integration with Apple’s hardware easier, leading to more enhanced features. Although we didn’t get any detailed answers on the earnings call, CEO Tim Cook said that “innovation that drives efficiency is a good thing.” We heard Meta Platforms CEO Mark Zuckerberg and Microsoft CEO Satay Nadella express similar sentiments on their companies’ post-earnings calls after Wednesday’s closing bell. (Read our earnings stories on Meta and Microsoft .) This is certainly a development to monitor in the future. AAPL 1Y mountain Apple 1 year Overall, the reaction to Apple’s earnings and the outlook Thursday evening serves as yet another good reminder of how expectations matter during earnings season. When expectations get terribly low in fear of an earnings miss and a downbeat view of the future, all that is needed is an inline result and some positive leading indicators about the future to get the stock to trade higher. We’re reiterating our 2 rating and $280 price target. Products It was a mixed quarter for the different product lines, with iPhone and Wearables revenue dipping in the quarter and falling short of the consensus estimate. But Mac, iPad, and Services revenue all grew by double-digit percentages and outperformed expectations. Although the iPhone’s performance was a little light, it still set a record in dozens of markets and regions, according to the company. Although the buzz around Apple Intelligence may feel like a dud and the upgrades aren’t happening as fast as we hoped six months ago, Cook sounded upbeat on the call about the sales it is driving. “We did see that the markets where we had rolled out Apple Intelligence, that the year-over-year performance on the iPhone 16 family was stronger than those where Apple Intelligence was not available.” This is a very good sign for things to come. In April, Apple Intelligence will roll out with more languages like French, German, Italian, Portuguese, Spanish, and Japanese. More features are in the works too. One of the more notable features people are excited to see is the enhanced Siri. Services The services segment always demands a lot of investor attention, and for good reason because it is a fast-growing, high-margin revenue stream. Revenue increased 14% from last year and gross margins expanded to 75% in the quarter, a level that is nearly double the 39.3% margin for Products. This is why it is critical for Apple to continue growing its installed base. The more hardware devices in circulation creates more opportunity for Apple to attach those higher margin services. In the quarter, Apple set a new record for its installed base with over 2.35 billion active devices. In addition, transacting and paid accounts set new records thanks to double-digit growth in paid accounts and paid subscriptions. Apple now has well over one billion subscriptions across the services on its platform. Geographic Apple outperformed revenue estimates in the Americas, Europe, and Japan. The Rest of Asia Pacific region was a small miss but still set a record. As for China, revenue was weaker than expected, falling 11% from last year. The troubles in China should not come as a shock to anyone who has followed the recent headlines. The company attributed over half the decline to a change in channel inventory, the competitive nature of the market, and the fact that Apple Intelligence has not been made available there. Apple is still waiting on government approval. On a positive note, it sounds like fiscal stimulus or subsidies in China could be a tailwind in future quarters. Cook pointed out that a national subsidiary program was announced by the Chinese government on Jan. 20, covering categories like smartphones, tablets, PCs, and smartwatches. Cook does expect fiscal stimulus to happen but said he would talk about what it looks like on the next earnings call. Cash Apple has a policy of being net cash neutral over time, meaning that if the cash isn’t used for acquisitions or organic growth investments, it is returned to shareholders through share repurchases and dividends. During the reported quarter, Apple paid $3.9 billion in dividends and equivalents and returned another $23.3 billion via the repurchase of 100 million shares. Guidance For the March quarter, the fiscal 2025 second quarter, Apple expects total to increase by a low-to-mid-single digit rate on a percentage basis. That’s roughly in line with the FactSet estimate of 5% growth and much better than what investors had feared. This outlook incorporates a negative impact of 2.5 percentage points from foreign exchange fluctuations. The company said that backing out the impact of FX shows a year-over-year growth rate for the March quarter that would be comparable to the December quarter. Services revenue is expected to increase in the low double digits year over year, a rate in line to slightly better than the FactSet estimate of about 11% growth. Gross margin is projected to be between 46.5% and 47.5%, better than the 46.9% estimate at the midpoint. Operating expenses are forecast in a range of $15.1 billion to $15.3 billion, a bit higher than the $15.15 billion estimate. (Jim Cramer’s Charitable Trust is long AAPL, META, MSFT. 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. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
Apple defied the doom and gloom that had been building for weeks.
