Apple posted the strongest June quarter in its history on Thursday, beat consensus on revenue, earnings, iPhone, Mac and gross margin, declared a dividend . . . and then, we watched the stock fall as much as 8% after the bell.
Is that a shocking, confusing, or a head-scratcher?
For those paying attention during the current Big Tech earnings season, not really.
Not only are expectations exceptionally high across the sector, increasingly so is the scrutiny.
It is a sign of the times, and it applies to Apple even though it has mostly stayed on the sidelines as fellow 'Magnificent' tech stocks caught AI fever.
What Apple's numbers actually say
The reported quarterly financials were intrinsically positive, and, indeed, emphatic. Totalling $109.4bn revenue was up 16% year over year, against a market consensus forecast of $108.65bn.
Diluted EPS came in at $2.02, up 29%.
iPhone revenue rose nearly 22% to $54.25bn, Mac sales grew by nearly 29% to $10.35bn on the strength of the new low-cost MacBook Neo, and business in Greater China climbed 22% to $18.82bn.
Look out, here's the outlook
Arguably what broke the Apple quote in afterhours was the iPhone maker's outlook.
Apple guided September-quarter revenue growth to 9–11% beneath the consensus that was pitched at about 12%, with gross margin of 47–48% and a 2.5 percentage point drag from currency.
More specifically, the stated cause of the shortfall was supply constraints. Pinch to zoom in closer, and the issue is memory.
Chief executive Tim Cook told analysts Apple has paid up for memory in each of the last three quarters and expects to pay more still.
"Obviously, the memory prices are choking, and so we'll have to look at alternatives," he said. Asked about the path beyond September, he offered no comfort: pricing continues to rise, with "an increasing impact on our business."
Nowhere to hide
This is where the AI narrative Apple has spent a year not participating in comes back around.
Apple's differentiation this 'bubble-like' cycle has been abstention. Rather than build frontier models, it licenses much of its AI stack from Google and rents Google's cloud.
As its peers are spending north of $100bn in capex this year, Apple is on track to fork out a meagre $11bn, and $3.4bn of it is slated for the June quarter.
The stock is up about 23% year to date. A year in which Apple closed the gap and then, earlier this month, overtook Nvidia as the world's most valuable company (and it briefly crossed $5 trillion on Tuesday).
Reaction among analysts and market pundits captured the mood, writing that investors initially bruised Apple for skipping the LLM investment cycle and are now coming around to its free cash flow.
Thursday complicated that trade rather than breaking it.
Yes, Apple has avoided the big capex line items; but it has not avoided the broader inflationary spectre, the ramp that's present sector-wide, including in the component market that the buildout runs through.
DRAM drama
In particular, the cost is arriving through DRAM pricing instead of depreciation schedules, and unlike depreciation, Apple can't schedule it.
Prices on Macs and iPads have already gone up; iPhones have so far been spared in most markets, which Goldman Sachs — which rates the stock a buy — reckons has cost Apple four percentage points of Chinese market share as Samsung, Xiaomi, Vivo and Oppo raised prices into a shrinking market.
The second complication was Services, the quarter's only real miss at $30.74bn against $31.22bn expected, which Apple attributed to currency.
It is a small number in absolute terms and an awkward one in narrative terms. Services is where a Google-powered Siri, due alongside new iPhone hardware in September, would eventually have to show up. A licensing strategy is cheap right at the point where it hasn't yet been monetised.
Cooked
The challenge comes amidst Tim Cook's last earnings call after 15 years, with hardware chief John Ternus taking over on 1 September and Cook moving to executive chairman. Ternus said almost nothing.
"There is so much opportunity for us with everything that's happening in this space," he offered, when finally asked.
Ternus inherits a company at record scale, a supply chain problem with no stated end date, and a valuation built partly on the idea that Apple found a way to sit this one out.
Apple first revolutionized personal technology with the introduction of the Macintosh in 1984. Then it did the same for the MP3 player, when the iPod launched, and then it repeated the trick with the iPhone.
Today, Apple leads the world in innovation with iPhone, iPad, Mac, AirPods, Apple Watch, and Apple Vision Pro. And, Apple's six software platforms — iOS, iPadOS, macOS, watchOS, visionOS, and tvOS — provide seamless experiences across all Apple devices and services including the App Store, Apple Music, Apple Pay, iCloud, and Apple TV.
"As you know, this will be my final earnings call," Cook told analysts. He leaves with a record quarter, the world's most valuable company, and a component problem he could not give an end date for.
Apple's stock is up 23% this year on the strength of a decision not to spend.
But, what Thursday established is that abstention was never insulation.
The buildout Apple sat out is bidding up the parts Apple still has to buy, and the guidance is the first quarter in which that shows up as a number rather than an anecdote. FactSet consensus has growth falling into single digits for most of next year.
