Apple’s Latest Earnings: A Cautious Look at Growth Prospects
Investors monitoring Apple (NASDAQ: AAPL) have reason to be cautious after reviewing its recent fiscal fourth-quarter results. While both sales and operating income increased from last year, and the company surpassed Wall Street’s expectations for revenue and earnings per share, the overall outlook remains lukewarm. The forecast for the current quarter lacked excitement, causing shares to dip instead of rise.
Importantly, one key takeaway from the earnings discussion is that Apple needs its consumer-focused AI platform, Apple Intelligence, to succeed. Without it, the company may continue to experience slow growth.
Sluggish iPhone Sales Affect Total Revenue
During the quarter ending in September, Apple reported revenue of $94.9 billion, an increase from $89.5 billion a year prior, and it exceeded analysts’ average prediction of $94.6 billion. However, profits fell from $1.46 per share last year to $0.97 per share this quarter, mainly due to a one-time tax payment. Still, the adjusted profit of $1.64 per share was above the expected $1.60 per share.
Interestingly, iPhone revenue only rose by 5.5% last quarter, despite anticipation surrounding the October launch of Apple Intelligence, which relies on the new iPhone 15 or iPhone 16 to function. Both models were available during the quarter. However, demand did not surge as expected.
Data source: Apple. Chart by author. Revenue figures in millions. YOY = year over year.
Therefore, the launch of Apple Intelligence has not sparked significant interest.
The iPhone typically generates about half of Apple’s revenue, indicating that if the iPhone’s sales stagnate, overall company growth may also stagnate. Since early 2022, Apple’s iPhone sales and overall revenue growth have been stagnant; while services have shown growth, they alone cannot sustain the entire company.
Data source: Apple Inc. Chart by author. Revenue figures are in millions.
Looking ahead, CEO Tim Cook stated during the earnings call that he anticipates growth in the low to mid-single digits for the current quarter. Although the holiday season is typically a strong sales period for Apple, expectations for this year appear dim.
Without renewed demand for iPhones, the potential growth catalyst of Apple Intelligence seems uncertain.
Will AI Save Apple’s Growth Challenges?
Despite the challenges, market research firm IDC predicts that sales of generative AI-capable smartphones, like the iPhone 15 and iPhone 16, could reach 234.2 million this year, with projections of 912 million units by 2028. These devices are anticipated to capture 70% of the smartphone market by then, which could benefit Apple.
However, this forecast doesn’t apply exclusively to Apple. Other manufacturers, such as Samsung with its Galaxy S24, and Google with the Pixel 8, are also developing AI-capable phones.
In addition, many users may opt for cloud-based solutions for heavy AI tasks. For example, Microsoft offers CoPilot, an AI platform that can function across multiple devices, providing flexibility for users who switch between smartphones and computers.
Furthermore, industry expert Gartner indicates that generative AI has reached a stage of disillusionment, where the technology’s capabilities may not live up to the initial hype. This insight raises questions about whether Apple Intelligence can effectively drive significant iPhone demand.
Gartner’s concerns align with those from Goldman Sachs Head of Global Equity Research Jim Covello, who noted the steep costs of AI technology and questioned whether it can solve complex problems, a requirement for self-sufficiency.
While Apple Intelligence may have its uses, it raises doubts about its capacity to significantly boost iPhone demand.
Mixed Signals on Apple’s Future Potential
To clarify, Apple is not facing imminent doom. It remains one of the largest and most profitable companies globally, leading the smartphone market with a growing services sector. The company expects its services growth to match its annualized rate of almost 13% in the current quarter, potentially sustaining that pace in the future.
However, without revitalization in iPhone sales, Apple’s results may remain underwhelming. While AI could offer a growth avenue, its success is uncertain.
There is no immediate need to sell Apple shares, but investors should be aware that other companies may present more promising growth opportunities at this time.
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Suzanne Frey, an executive at Alphabet, serves on The Motley Fool’s board of directors. James Brumley holds positions in Alphabet. The Motley Fool owns shares in and recommends Alphabet, Apple, Goldman Sachs Group, Microsoft, and Qualcomm. The Motley Fool recommends Gartner and has the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool discloses its investing policy.
The views and opinions expressed herein represent the views of the author and do not necessarily reflect those of Nasdaq, Inc.
