The biggest takeaway from Apple’s quarterly report is that iPhone revenue surged roughly 22% from the year-ago period, rising from $44.6 billion to $54.3 billion. Service revenue grew about 12% as well, increasing from $27.4 billion to $30.7 billion. Apple’s gross margin improved from 46% to 50% over the last year as Sales from Services continues to rise as a share of the company’s business and Services is significantly more profitable than hardware sales.

Another interesting detail: Apple’s revenue from Greater China increased roughly 22% from the June 2021 quarter to the June 2022 quarter. This is the first time we’ve seen year-over-year growth in China in quite some time. Apple is also spending less on capital expenditures (things like factories, equipment, and data centers) even as it spends more on research and development. This is in stark contrast to Microsoft, Google, Amazon, and Meta, which are all pouring money into AI-related infrastructure.

Zooming out, Apple’s annual revenue was $366 billion in Fiscal 2021 and $416 billion in Fiscal 2025, an annual growth rate of around 3%. Meanwhile, Apple’s profit allocated to each share of stock increased from $5.61 to $7.46, thanks largely to share buybacks. Looking forward, analysts are expecting fiscal 2024 revenue of around $478 billion and fiscal 2025 revenue of around $520 billion. They see earnings per share continuing to climb, to around $8.84 this year and $9.54 next year.

Our view: iPhone and China rebound. Those are the two things we care about most from this report. If new AI features are driving people to upgrade their iPhones, that’s a very good sign for the stock. We’re less sure that China will continue growing at this rate, as it could be the result of government subsidies that won’t stick around. We’d want to see that sustained before getting too excited.

Growth Drivers and Strategic Bets

There are several catalysts that could drive Apple's business. New AI features likely brought by Apple Intelligence and baked into Siri later this fall could convince millions of people to upgrade to new iPhones since the most advanced features will likely only work on newer iPhone models. Continued growth from Services, particularly its high margin Services business, should continue to lift earnings. Upgrade and purchase rates in China and other emerging markets will likely continue to play a big role in driving results given their cyclicality. Apple's custom silicon strategy will likely continue to provide a competitive advantage over other Android manufacturers who are reliant on commercial off-the-shelf chips.

Emerging products like the Vision Pro headset and future innovations are exciting long-term stories, but sales of these products are too low to materially impact Apple's top or bottom line at the moment.

As for risks, Samsung and other Android manufacturers are improving their AI capabilities quickly, particularly those connected to Google's Gemini AI. OpenAI, Google, Microsoft are all racing to develop the most advanced AI models. Apple has decided to partner with these companies versus building its own biggest AI model, which could prove to be a disadvantage if AI becomes a key battleground among smartphones in the future.

The ongoing lawsuit against Google is a noteworthy legal risk. The U. S. government accused Google of unlawfully paying Apple to keep Google Search as the default iPhone search engine, generating billions of dollars in revenue for Apple. A judge ruled in 2025 that Google could continue this payment deal for now, but Google is appealing the ruling. This legal battle is far from over. If this deal is stopped or scaled back by regulators, Apple would lose a significant portion of its high margin Services revenue.

Our View: We think investors have plenty of reasons to be optimistic about the long-term growth trajectory of Apple's Services business and rising installed base. However, we are hesitant to get too excited about Apple Intelligence and Siri as a major catalyst for iPhone upgrades until we see how consumers react to these features post-launch. We view the Google search deal lawsuit as a longer-term risk that will play out over several years, not something that will derail Apple stock in the short-term.

Capital Allocation and Balance Sheet

Apple still piles up massive cash flows. Apple's free cash flow (FCF, cash remaining after expenses and capital expenditures) came in at approximately $98.8 billion in fiscal 20 25, down modestly from approximately $108.8 billion in fiscal 20 24. This slight decline is almost certainly attributable to higher costs and modest increases to investments in AI-related infrastructure and R&D.

Apple has continued to return massive sums to shareholders via buybacks. On average, Apple has repurchased roughly $20 billion or more of stock per quarter while also paying out a steady dividend of roughly $4 billion per quarter. Total shareholder equity (a company's net assets as reported on its balance sheet) at Apple has ballooned recently as profits exceed buybacks, growing from roughly $66 billion to $108 billion in a year. Apple maintains a conservative balance sheet with debt modestly higher than one times equity.

Apple, under CFO Kevan Parekh, has continued to take a relatively light-touch approach to AI infrastructure spending vs. its largest peers, notably by leveraging outside cloud capacity to supplement its own instead of doubling down on internal infrastructure.

Our Thoughts: We view Apple's relatively restrained spending on AI as a positive for margins in the near-term and this is reflected in Apple's own financials and public commentary. However, if Apple's private AI computing requirements were to increase faster than expected, we could see a material increase in spending down the road. Note that this is not our base case expectation within the next 12 months.

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