Apple Earnings (Dec '25Q)

January 30, 2026

Apple reported earnings last night.  And they were a blow out like we haven’t seen in years for the company.  Demand for iPhone 17 was much higher than expected, especially in China, where quarterly sales hit a record. 

iPhone revenue grew 23% y/y.  Total revenue from China grew 38%, driven by strong iPhone 17 demand.  For both iPhones and China, those were their highest growth rates since 2021 during the covid lockdown.  Remember during the lockdown, how we all were suddenly locked in our homes and had nothing to spend money on?  Well, most people spent money on “new stuff”.  And that stuff included new iPhones.  We seem to have finally worked our way through the demand pull-forward from that event years ago.

The question now:  how sustainable is that growth?  iPhone growth rates are famously cyclical, driven by new phone releases and the economic backdrop.  Management guided to revenue growth next quarter of 13-15% which was better than expected.  Morgan Stanley said this morning that they believe 20% iPhone growth is sustainable this year!  That would be surprising.

Interestingly, the stock isnt moving much.  It’s actually down -1%.  I suppose the market has accepted the fact that iPhone sales will occasionally have big peaks (as well as low valleys), as different versions of the iPhone cycle through. Still, this was a pretty big beat, so I’m kinda surprised at the muted reaction.  

The market is also concerned short-term about rising memory prices (as we’ve discussed before).  That might pressure profit margins and force Apple to pass along a price increase later this year.  The prices of short-term memory from companies like Micron (MU) have spiked dramatically in recent months.  This is due to the accelerating demand from the AI data center buildout. 

Investment Thesis

At the core of Apple’s business is the iPhone. But under the hood, there are two main business drivers – iPhone sales and Services sales. The Services business includes: app store fees, digital subscription fees, ad revenue, and payment fees. The Services business has much higher profit margins than the iPhone. In fact, the Services segment contributes over 40% of total company gross profit now. In contrast to the cyclical iPhone sales, Services revenue grows at a steady pace. And, since it recently has outgrown the product businesses, Services is driving margin expansion in the overall company. As a result, a key metric to watch for Apple is growth in the ecosystem – that is the total number of iOS users in the world. iPhone growth is obviously important. But tracking the growth in the number of users is increasingly important for Services and for the overall company.

Today, Apple is 6% of the S&P 500 and the 3rd largest position behind Nvidia and Google.