Apple’s latest earnings report highlights a shift in its growth strategy, with record-high profit margins driven by the expansion of its services business. In the fiscal first quarter, the company reported a gross margin of 46.9%, surpassing its previous record of 46.6% set in early 2024. While iPhone sales declined nearly 1% year-over-year, total revenue increased by almost 4% to $124.3 billion, supported by steady growth in services.
Apple’s services segment, which includes App Store purchases, advertising, AppleCare, digital payments, and various subscriptions, generated $26.34 billion in revenue, exceeding analyst expectations. Now accounting for roughly 21% of Apple’s total revenue, this division has become a $100 billion annual business. The company expects gross margins in the current quarter to range between 46.5% and 47.5%, reinforcing its focus on high-margin revenue streams.
CEO Tim Cook emphasized that Apple delivered its best lineup of products and services during the holiday season, reflecting the company’s strategic shift toward recurring revenue. Historically, Apple’s gross margin hovered between 38% and 39%, supported by its strong supply chain and pricing power. However, with iPhone growth slowing and the global smartphone market reaching saturation, the company’s increasing reliance on services has dramatically altered its financial trajectory.
Apple first crossed the 40% gross margin threshold in 2021 and has steadily expanded it since then. Investors have responded positively, with Apple’s stock rising 31% last year, outperforming the Nasdaq and pushing the company’s market capitalization to $3.6 trillion. Analysts suggest Apple’s valuation is justified by its dominance in premium consumer electronics and its ability to generate high-margin digital revenue, especially as generative AI continues to shape the industry.
Financial experts remain optimistic about Apple’s stock, recommending it as a strong investment opportunity. With its growing emphasis on services and premium devices, Apple continues to differentiate itself in the competitive tech landscape. Following the earnings report, Apple shares climbed more than 3% in extended trading, signaling continued confidence in the company’s long-term profitability and innovation strategy.
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