With sales recovery gaining steam, Apple braces for major AI push

Apple Inc. (NASDAQ: AAPL) returned to sales growth in the June quarter, helped by a rebound in iPad sales and continued strong performance by the services business. While revenues and earnings topped expectations, there was a modest decrease in the sales of iPhone which remains the company’s biggest revenue source. Currently, the gadget giant’s investments are focused on developing its artificial intelligence platform called Apple Intelligence.

Apple’s shares traded higher during Friday’s session, reflecting the post-earning upswing in investor sentiment. The stock’s performance has been excellent this year, gaining about 33% in the past four months alone.   

Innovation

The Apple leadership said it is on track to start shipping the Apple Intelligence service later this fall. The latest quarterly results reflect the company’s aggressive investments in the AI platform. Following the strategy of enhancing user experience through innovation, the company is extending the Tap-to-Pay facility on iPhone to more markets. In the third quarter, it opened the first-ever retail location in Malaysia, expanding further into emerging markets.

Apple plans to continue investing in Apple Intelligence, which is designed to transform the way users interact with features like Writing Tools and Image Playground. The company is also integrating ChatGPT into iPhone, Mac, and iPad, enabling users to draw on a broad base of world knowledge.

Results Beat

In Q3, a 1% drop in iPhone sales, which account for nearly 50% of total revenues, was more than offset by a 24% surge in iPad sales — reversing the recent trend — and a 14% increase in services revenue. Total sales rose 5% year-over-year to $85.8 billion and beat estimates. Net income was $21.45 billion or $1.40 per share in the third quarter, compared to $19.88 billion or $1.26 per share in the prior-year period. Analysts were looking for slower bottom-line growth. Apple ended the quarter with an impressive $25.6 billion in cash and cash equivalents.

Commenting on the Q3 report, Apple’s CEO Tim Cook said at the earnings call, “We are a company in relentless pursuit of big ideas. Time and again, we’ve seen how a spark of creativity can reach breakthrough velocity, reach across previously unexplored dimensions, and ultimately take flight in ways that can change the world. It’s why we’re going to keep investing in the meaningful innovation that enriches the lives of all of our customers. We have a busy time ahead of us, and I couldn’t be more excited for all the amazing things yet to come.”

Sales Trend

Meanwhile, Apple continues to face challenges in China where sales dropped 7% year-over-year in the June quarter, while demand grew in all other markets. The company said its installed base of active devices reached record highs across all geographical regions and product categories. Buoyed by the impressive Q3 outcome, the management forecasts continued strong revenue and earnings growth for the current quarter that ends in September 2024.

Apple’s stock traded up 2% on Friday afternoon. In mid-July, the stock reached an all-time high of $234.82, before paring a part of those gains in the following weeks. It continues to be one of the best-performing Wall Street stocks.