- Fair Value Estimate
: $290 - Morningstar Rating
: ★★ - Morningstar Economic Moat Rating
: Wide - Morningstar Uncertainty Rating
: Medium
Apple’s AAPL September-quarter revenue beat guidance, rising 12% year on year to $114 billion. Gross margin rose 70 basis points year on year to 47.9%, with a one-time tariff refund benefit. Revenue for iPhone rose 18% year on year. December revenue is guided to high-single-digit year-on-year growth.
Why it matters: Results were good, but the biggest stories are margins and supply. Margins are pressured by memory cost inflation, partially offset by Apple’s price increases. We expect price to lead revenue growth in 2027. Revenue is also constrained by limited supply of logic and memory chips.
- IPhone growth looks to be decelerating after 2026, but remaining positive. We expect unit sales to be flat in 2027, with an evolutionary iPhone 18 family and higher prices. We expect high-single-digit iPhone revenue growth in 2027, almost entirely from pricing.
- We like Apple’s artificial intelligence strategy, and agree with management that Apple devices are the premier place for consumers to use AI. We also like that the firm is foregoing the frontier model race to focus on integrating AI into features users will love. Still, we doubt AI can materially raise unit sales.
The bottom line: We maintain our $290 fair value estimate for wide-moat Apple, with our long-term thesis for moderate long-term growth and margin expansion intact. Shares dipped about 3% after-hours, but remain moderately overvalued to us.
- We project margins compressing about 2 points in fiscal 2027 from memory inflation. We like Apple’s move to raise prices but share the pain with its customers via margin compression. We project margins to rebound in 2028 and beyond as memory prices come back to earth.
- Apple is up 25% year-to-date, and just shy of all-time highs. We agree with the market’s tacit approval of the AI strategy, but we don’t think AI will enable Apple to raise unit sales. We see good AI features keeping customers in the iOS ecosystem, but not accelerating refresh cycles.
Editor’s Note: This analysis was originally published as a stock note by Morningstar Equity Research.
The author or authors do not own shares in any securities mentioned in this article.
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