Apple's record quarter hides a slowdown in China

Apple narrowly surpassed Wall Street’s revenue estimates for the fourth quarter on Thursday, driven by an expanding services business. Apple's stock rose more than 4% in after-hours trading.

Total revenue rose 8% year-over-year to $102.5 billion, just beating Bloomberg's analyst consensus of $102.1 billion. The results come the same week that Apple became the third company in history to reach a market capitalization of $4 trillion — following only Nvidia and Microsoft.

Diluted earnings per share (EPS) reached $1.85, beating the consensus of $1.77. Gross margin for the quarter was $48.3 billion, including an estimated $1.1 billion tariff hit, beating a forecast of $47.4 billion.

Analysts have been awaiting sales data for the new range of iPhone 17 models, which were released in September. iPhone product revenue increased 6% year-over-year to $49 billion for the quarter, a narrow miss compared with the consensus estimate of $49.3 billion. This marks a fourth-quarter record for iPhone revenue.

Greater China was the weak link: Revenue came in at $14.5 billion, down about 4% year over year and well below expectations (around $16.4 billion), a miss that underscores tougher competition from domestic Android flagships and lingering pressure on high-end iPhone demand.

Product revenue overall was $73.7 billion, up 5% compared with the same quarter a year ago, marginally more than the consensus estimate of $73.5 billion.

Services revenue reached $28.8 billion, increasing 15% year-over-year, exceeding the consensus estimate of $28.2 billion. The results take the division's annual revenues to $109.2 billion for the year to last month, topping $100 billion for the first time, and beating analysts’ consensus estimates from Visible Alpha of $108.6 billion.

Services — such as Apple Music, iCloud, App Store — is a high-margin unit and remains a stabilizer for Apple. It has doubled in size over the past five years, positioning it as a vital source of growth as iPhone sales become less reliable. Services are set to make up a quarter of Apple’s revenue but as much as 50% of its profit, JPMorgan analyst Samik Chatterjee told the Financial Times this week, citing the “stickiness” of products such as Apple Pay and iCloud storage. “Engagement of consumers [is] continuing to increase on iPhones, with growth not only driven by growth in the installed base but also higher monetization per device,” Chatterjee added.

The results are a reminder to Wall Street that AI is not the only technology to generate returns: Sticky products have staying power and can be a hedge against big bets on innovation.

While Apple has emphasized it is “significantly growing” its AI investments, the market still views it as somewhat behind peers in generative AI momentum. Apple's stock has given a lackluster performance this year compared with the rest Magnificent Seven, up roughly 8% year-to-date as of Thursday at 3 p.m. ET, ahead of only Amazon.

After several years of incremental updates, Apple’s latest product cycle has generated renewed enthusiasm. The new iPhone Air marks the first major design change in years, while the latest MacBook Pro featuring the M5 chip marks a win for its computing unit, which has deepened its market share since the launch of Apple’s custom silicon.

"We are excited to be sharing our most extraordinary lineup of products as we head into the holiday season," Tim Cook, Apple’s CEO, said in a statement.

"As competitors struggle to define clear AI business models, Apple’s enduring strength, its dominance in mobile computing and installed user base, has reemerged as a strategic advantage. Regardless of who ultimately ‘wins’ in AI, Apple remains a gateway to billions of consumer interactions through its devices," Zacks Investment Research wrote in an analyst note Wednesday. "Despite concerns about slowing top-line growth, Apple continues to deliver margin expansion and exceptional cash generation."