Despite the market getting spooked on Halloween causing the Nasdaq exchange to plunge 512 points, or 2.8%, on tech stocks getting routed, Apple (NASDAQ:AAPL) stock fared slightly better after earnings. It dropped only 1.8%, but that should be a temporary situation.
The financial report showed the consumer tech giant enjoyed robust sales and earnings that were only knocked back because of a one-time earnings hit. It had to pay 13 billion euros ($14.3 billion) to Ireland for back taxes after a reversal of a European General Court decision. Absent that, Apple’s profits blew past Wall Street estimates.
It is clear Apple remains in full stride, and though AAPL stock has traded in a fairly narrow band throughout the summer and into the fall, by the end of next year it ought to have broken out and surged to become the first $4 trillion stock.
24/7 Wall St. Insights:
- Apple (AAPL) stock dropped after reporting fiscal Q4 earnings, but it was on a day when the market as a whole plunged hard.
- The consumer tech company, though, is seeing robust sales in its new iPhone 16 and with the rollout of AI capabilities, expect Apple to beat expectations and AAPL stock to exceed a $4 trillion valuation next year.
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Still a robust growth story
Apple reported sales of $94.9 billion beat analyst estimates of $94.3 billion while adjusted earnings of $1.64 per share came in well ahead of forecasts of $1.59 per share. GAAP earnings were $0.97 per share.
iPhone sales also came in much stronger than analysts were anticipating. Apple reported $46.2 billion in revenue for the mobile device in the fiscal fourth quarter, a 5.5% increase and ahead of estimates of $45 billion, even though the iPhone 16 wasn’t released until Sept. 20.
Considering the quarterly results included only a week or so of new model sales, this bodes well for Apple because it is now rolling out Apple Intelligence, its artificial intelligence platform. Just released on Monday, the new AI capabilities such as generative AI video, could drive iPhone sales even higher. Apple will incorporate ChatGPT into it in December.
Initially Apple Intelligence will only be in U.S. English, but local English languages will arrive soon thereafter, to be followed by other languages in April. CEO Tim Cook said the uptake of the current product rollout is already twice as fast as that of iOS 18.1 with Apple Intelligence compared to iOS 17.1 over the same time period. Cook naturally believes it “is a reason for upgrading” to the new iPhone lineup.
Wall Street is forecasting over $72 billion in iPhone sales for the fiscal first quarter, but that could fall well short of the mark.
Serving up revenue growth and margins
Of equal importance is Apple’s service revenues, which hit a record $25 billion for the period, a 12% year-over-year gain. Services have long been seen as an additional growth driver for Apple, and include iCloud, Apple Music, and Apple Pay, which are high-volume, repeatable revenue streams with very high profit margins. Operating margins stood at 74% in the quarter. It has “well over” 1 billion paid subscriptions, according to CFO Luca Maestri, double what it had just four years ago.
Apple is forecasting services to grow at a similar rate to what it experienced in fiscal 2024, which was an increase of nearly 13%. It also has a full suite of upgraded products, including the Apple Watch 10, Airpods 4, and improved hearing and sleep apnea detection.
China is still a headwind
The one area where Apple is lagging is China, which continues to fall though it has largely stabilized. Sales came in at $15.03 billion, down slightly from $15.08 billion, but missing analyst estimates by a full $1 billion.
The slowing Chinese economy, which has forced Beijing to take enormous steps to prop up the country’s own businesses with massive cash infusions into the economy to spur consumer demand, continues to weigh on Apple. The consumer tech giant is not alone in seeing ongoing pressure from struggling Chinese consumers.
Obviously, China remains an important market for Apple’s future growth, but it can still see substantial growth in the rest of the world and achieve that $4 trillion valuation next year.
The first $4 trillion stock
Apple is the most valuable company at $3.4 trillion, even after AAPL stock slipped after earnings. To reach the next milestone only requires its shares to improve by 18% over the next year. That is well within its grasp, particularly if iPhone sales begin a new smartphone upgrade cycle as expected.
Unlike many other AI-adjacent tech companies such that will need to keep spending significant sums on AI, impeding their performance, as a consumer tech stock Apple doesn’t carry the same burden. Look for AAPL stock to cross the $4 trillion threshold sooner rather than later in 2025.
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