Apple reported strong September-quarter earnings, with revenue rising 12% year over year to $114 billion, surpassing guidance. The company's gross margin improved by 70 basis points to 47.9%, partly due to a one-time tariff refund benefit. iPhone revenue saw an 18% year-over-year increase, though December revenue is expected to grow at a high-single-digit rate.
Despite the positive results, Morningstar analysts note that margins are under pressure from memory cost inflation, which is only partially offset by Apple's price increases. The firm expects revenue growth in 2027 to be driven by pricing rather than unit sales, with iPhone revenue projected to grow at a high-single-digit rate next year.
Apple's AI strategy received praise, with analysts agreeing that the company's devices are the premier place for consumers to use AI. However, they doubt that AI will significantly boost unit sales. The long-term thesis for moderate growth and margin expansion remains intact, with a fair value estimate of $290 maintained.
Shares dipped about 3% after-hours but remain moderately overvalued according to Morningstar. The firm projects margins compressing about 2 points in fiscal 2027 due to memory inflation but expects a rebound in 2028 as memory prices stabilize. Apple's stock is up 25% year-to-date, nearing all-time highs.