Apple’s AI-Enhanced iPhone Sales Boost Revenue, But Conservative Forecast Raises Concerns

Apple’s latest AI-enhanced iPhone models helped lift fourth-quarter revenue beyond expectations, with earnings per share reaching $1.64. However, a tempered growth forecast and weaker China sales left analysts uncertain about sustained momentum, prompting a 1.4% dip in Apple shares after hours.

Apple Expects Modest Growth Amid Strong Services Revenue, but Weak China Sales Raise Concerns

Apple's fourth-quarter sales exceeded Wall Street expectations due to the company's most recent AI-enhanced iPhone lineup. Nevertheless, analysts were uncertain whether the growth would continue throughout the holiday season due to a conservative revenue forecast.

According to Reuters, Apple's shares experienced a 1.4% decline in after-hours trading, exacerbated by a decrease in China sales. This occurred even though the company's overall profit and revenue exceeded expectations.

CFO Luca Maestri indicated Apple anticipates “low to mid-single digits” revenue growth for its fiscal first quarter, which ends in December. Analysts, however, had expected a 6.65% increase to $127.53 billion, according to LSEG data. Apple forecasted double-digit solid growth in its services segment, leading some analysts to question whether hardware revenue may weaken. However, executives did not provide details, particularly about the iPhone’s prospects in China, where Apple’s new AI features are currently unavailable.

Analyst Tom Forte of Maxim Group attributed Apple’s share drop primarily to weaker-than-expected China sales in the fourth quarter, suggesting a possibility of “sustained weakness” in the market.

For the fourth quarter, Apple reported revenue of $94.93 billion, surpassing Wall Street’s $94.58 billion forecast. Apple’s earnings per share were $1.64, excluding a one-time EU tax charge, exceeding analyst predictions of $1.60. iPhone sales rose 5.5% to $46.22 billion, slightly outpacing estimates, though other product lines fell short.

Apple’s quarter ended on September 28, capturing just a week of iPhone 16 sales, which began on September 20. CEO Tim Cook stated that iPhone 16 sales grew at a faster rate than those of the iPhone 15 within the same timeframe, noting early feedback on the phone’s AI capabilities, dubbed Apple Intelligence, has been “great” from both customers and developers.

Apple’s AI-Driven Strategy Bolsters Privacy, but Slower Rollout May Impact Upgrade Demand

Apple’s AI strategy, integrated into the latest operating systems through features like email rephrasing tools, is central to the appeal of new phones. While some Apple Intelligence features are available on the iPhone 15 Pro and iPhone 16 models, the rollout has been staggered, leading analysts to speculate on a potentially slower upgrade cycle as users wait for flagship features.

Amid the AI momentum from tech giants Microsoft and Meta, which reported ongoing increases in AI investment, Apple’s capital expenditures rose to $9.45 billion. Apple keeps costs lower than its competitors by using third-party data centers for some AI functions. However, it leverages in-house silicon for Apple Intelligence to maintain privacy and security standards. “There would be some benefit to us by using our own silicon, obviously, but that’s not the reason we’re doing it,” Cook explained, emphasizing security as a core reason.

In the services division, which includes iCloud and Apple Music, Apple reported $24.97 billion in revenue, slightly below the $25.28 billion analysts anticipated. Mac and iPad sales also underperformed, at $7.74 billion and $6.95 billion, respectively. Meanwhile, the wearables division, including Apple Watch and AirPods, generated $9.04 billion in revenue, missing estimates of $9.2 billion.

Factoring in a one-time European tax payment, Apple reported earnings per share at 97 cents, closing a quarter marked by iPhone-driven solid momentum and lingering uncertainties in international markets.