Apple Resilient as AI Markets Shift with DeepSeek Launch

The news of DeepSeek’s launch last week spread rapidly in the markets, wiping out 16% of Nvidia‘s value while affecting many other artificial intelligence (AI) stocks.

Meanwhile, some stocks managed to hold their ground during the DeepSeek shock. Notably, Apple (NASDAQ: AAPL) not only weathered the storm but also finished the week with a strong earnings report. As the world’s most valuable company, Apple is well-positioned to take advantage of advancements in AI.

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Apple operates as a vast and intricate organization with many moving components. In its recent earnings report, the positive news outweighed the negative, allowing the company to stand firm amid the AI downturn. Here’s a closer look at why Apple remains resilient and how it can leverage DeepSeek’s fresh low-cost AI offerings.

Key Performance Highlights

In its 2025 fiscal first quarter (ending December 28), Apple faced two significant challenges. Sale of iPhones dipped by 1% compared to last year and fell below analyst expectations, while revenue from China shrank by 11% year over year. Management cited production issues in China as a reason for the revenue dip.

Image source: Getty Images.

Despite these setbacks, the quarterly report showcased several positives. Total revenue climbed 4% year over year to $124.3 billion, while earnings per share (EPS) rose 10% to $2.40. Apple surpassed consensus estimates of $124.1 billion for revenue and $2.35 EPS.

The services segment performed exceptionally well, with a 14% revenue increase year over year, totaling $26.3 billion compared to expectations of $26.1 billion. This segment also offers higher margins, helping boost the overall gross margin to 46.9%, up from 45.9% last year.

Market sentiment remains positive about Apple’s AI prospects.

A Leader in AI Integration

Apple has incorporated a variety of AI services within its ecosystem. Apple Intelligence launched in select regions, and despite the drop in total iPhone revenue, sales in these areas—including the U.S.—show promise, with CEO Tim Cook noting record iPhone revenues in numerous markets.

Apple Intelligence introduces a range of enhanced features like writing tools, text-prompted images and videos, and image editing. While these capabilities may seem similar to those of other AI services, they significantly enrich the company’s ecosystem, creating a unified technology approach that contributes to its success.

Focusing on the user experience, the company maintains a unique advantage by ensuring its technology is only accessible through Apple devices. This strategy promotes customer loyalty, making each new buyer potentially more valuable over time. Users of non-Apple products may find alternative apps with similar AI functions, but these can never match the holistic integration offered by Apple’s ecosystem.

Looking Ahead

Several factors suggest a bright future for Apple and its AI services. While the company has been slower to launch than some competitors, it has also opted for a more cost-effective strategy. This approach means that the DeepSeek launch does not pose a significant threat, as management seeks to invest judiciously in developing AI capabilities.

If AI technologies become more mainstream at lower costs, many anticipate that considerable AI use will stem from Apple’s products. Loyal Apple users will likely interact with AI through the company’s ecosystem, particularly via the iPhone as Apple expands its AI functionalities.

Some experts believe that the slowdown in iPhone upgrades during the holiday season can be attributed to the devices’ improved quality, which reduces the urgency to upgrade. While this may impact short-term sales, longer-lasting examples of superior products are essential for retaining customers in the long run.

As Apple rolls out new features in Apple Intelligence and expands its availability, it strengthens the stock’s appeal for long-term investors.

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Jennifer Saibil has positions in Apple. The Motley Fool has positions in and recommends Apple and Nvidia. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.