Apple Inc (AAPL) Com Stk NPV (CDI)

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Apple reported a 16% rise in first‑quarter revenue to $143.8bn ($138.5bn expected). Growth was led by iPhone sales, which rose 23% to $85.3bn, helped by strength in Greater China. Services revenue rose 14% to $30.0bn.

Operating profit rose 19% to $50.9bn, supported by a higher product gross margin of 40.7%.

Free cash flow of $51.6bn supported the repurchase of $24.7bn of stock, and a new dividend of $0.26 was announced. Net cash, including longer-term securities, stood at $54.3bn.

For the coming quarter, Apple expects revenue growth of 13–16% (10% expected), with a gross margin at 48–49%.

The shares were broadly flat in pre-market trading.

Our view

Apple delivered a standout iPhone quarter and a healthy guide for the coming quarter. The only thing really holding shares back on the day was the lack of new AI details and the fact that expectations were already high.

In any case, it’s remarkable how a successful iPhone launch can shift sentiment. The narrative around Apple has quickly shifted from concerns about its AI strategy to excitement over strong iPhone 17 demand, and renewed hopes that 2026 will finally deliver a truly compelling AI product.

We’ll hold up our hands. The latest iPhone has been more successful than we thought. It’s not a game-changing product, but there were enough new features to give people a reason to upgrade. Apple’s brand is acting as a strong catalyst for now, but we believe innovation needs to come sooner rather than later.

AI offers a solution on paper, but Apple hasn’t been able to adapt quick enough. Apple Intelligence is a country mile from the ‘wow’ experience that was promised. Hopes are now tied to an AI-powered Siri that should arrive in the first half of 2026. A new partnership with Google to use Gemini increases the chances of success, but it still has to execute.

Services growth is likely to remain a key profit driver going forward, including areas like the App Store and Apple Music. This part of the business is higher margin, as adding users doesn’t carry the same costs as building a MacBook or iPhone. But for Services to reach its full potential, it still depends on growing hardware sales.

Strong China sales and semi-stable US–China tensions are encouraging, too, but Apple needs to reduce its manufacturing dependence on the region. India, Vietnam, and the US are key to that shift - and credit to CEO Tim Cook, often criticised for a lack of innovation, he is a master of supply chain management.

The flip side of Apple's lack of aggressive AI investment is that its financials are rock-solid. Free cash flow is abundant, enabling it to aggressively buy back its own shares. This should not be underestimated, as it offers a diversification avenue compared to most of its big tech peers.

All in, Apple’s brand is so strong that it’s well placed to navigate the uncertainty ahead. iPhone sales are key, and demand looks strong despite a lack of value add from AI, which bodes well if it can execute this year. That said, we think the valuation looks about right, given the lingering questions around AI integration.

Environmental, social and governance (ESG) risk

The technology industry is low-risk in terms of ESG, though some segments like Electronic Components are more exposed to environmental risks. Business ethics tends to be a material risk within the tech sector with everything from anti-competitive practices to intellectual property rights weighing. Historically the sector has flown under the radar when it comes to regulatory oversight, but more recently we’ve seen regulators keen to get involved given the high-profile of some of the “big tech” names. Other key risk drivers include labour relations, data privacy, product governance and resource use.

According to Sustainalytics, Apple’s management of ESG risk is strong.

Apple is facing legal pressure on multiple fronts, with lawsuits and investigations over antitrust practices tied to the App Store, Apple Pay, and developer restrictions - leading to billions in fines across the EU, UK, and US, while prompting policy changes like lowering fees and allowing third-party app stores in Europe.

This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by LSEG. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.

This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment.

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