Apple reported a 17% rise in second-quarter revenue to $111.2bn ($109.7bn expected). Growth was led by iPhone sales, which rose 22% to $57.0bn, helped by strength in Greater China, where total revenue rose 28%. Services revenue rose 16% to $31.0bn.
Operating profit rose 21% to $35.9bn ($34.2bn expected), supported by a higher product gross margin of 38.7%.
Free cash flow of $78.3bn over the first half supported the repurchase of $37.0bn of stock. Net cash, including longer-term securities, stood at $61.9bn.
For the coming quarter, Apple expects revenue growth of 14-17% (11% expected), with a gross margin at 47.5–48.5%.
The shares rose 2.5% in early trading.
Our view
Apple delivered a strong second-quarter update, with iPhone sales driving the beat and guidance pointing to continued momentum in the coming quarter. Revenue, operating profit and earnings all came in ahead of expectations, while the outlook for 14-17% revenue growth was much stronger than the market had expected. That’s impressive given Apple is still dealing with supply constraints, and its AI story remains more promise than product today.
The iPhone cycle is the key story, but it has little to do with AI for now. The last major upgrade cycle was in the 2021 financial year, and growth has been struggling since as customers held on to older devices for longer. The latest phones are not game changers, but Apple’s brand is sticky enough, and its ecosystem strong enough, that loyal customers now seem ready to upgrade anyway.
Margins have been another bright spot, though memory prices are now a growing headwind. US-China tensions also remain a risk, making the gradual shift towards India, Vietnam and the US important. Credit to Tim Cook, often criticised for a lack of innovation, he has always been a master at managing relationships.
The bigger question is what comes next for incoming CEO John Ternus. Apple Intelligence has not delivered the “wow” moment investors were hoping for. Management has confirmed major updates to Siri and Apple Intelligence this year, which now feels like the next key test. Get it right, and the next few years could look much better than the last few.
Apple is taking a different AI route than its tech peers, leaning on partners (like Alphabet for Gemini access) rather than building a major model itself. That comes with risks, especially around control and differentiation, but it also fits Apple’s long-running playbook: generate huge cash flows, invest selectively and return heavily to shareholders. We think this approach can work, but Apple still needs to prove that a partnership-led AI strategy can deliver.
Services remain a key profit driver. Growth is strong, and this part of the business carries much higher margins than selling physical devices. But it still depends on the size and strength of Apple’s installed base, so hardware momentum remains important even for parts of Apple that look less tied to the iPhone.
All in, we don’t think the leadership shift is a major risk, and strong device demand gives management time to nail down its AI strategy. The lack of mammoth AI investment actually offers nice diversification from other tech names, but we think the valuation already reflects many of Apple’s core strengths.
Environmental, social and governance (ESG) risk
The technology industry is low-risk in terms of ESG, though some segments like Electronic Components are more exposed to environmental risks. Business ethics tends to be a material risk within the tech sector with everything from anti-competitive practices to intellectual property rights weighing. Historically the sector has flown under the radar when it comes to regulatory oversight, but more recently we’ve seen regulators keen to get involved given the high-profile of some of the “big tech” names. Other key risk drivers include labour relations, data privacy, product governance and resource use.
According to Sustainalytics, Apple’s management of ESG risk is strong.
Apple is facing legal pressure on multiple fronts, with lawsuits and investigations over antitrust practices tied to the App Store, Apple Pay, and developer restrictions - leading to billions in fines across the EU, UK, and US, while prompting policy changes like lowering fees and allowing third-party app stores in Europe.
Apple key facts
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This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by LSEG. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.
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