Apple’s “Staggering” iPhone Quarter Silences Margin Fears

Apple didn’t just clear the bar this quarter — it kicked it over and asked if anyone wanted a rematch. For its fiscal Q1 (December quarter), Apple printed EPS of $2.84 versus $2.67 expected, and revenue of $143.76B versus $138.48B expected. Shares popped in the initial after-hours reaction, though the stock’s “stickiness” ultimately depended on guidance, which is where Apple delivered the second punch: management guided fiscal Q2 revenue growth of +13% to +16% year-over-year versus about +10% consensus, alongside a gross margin outlook of 48%–49%. In a tape that has been hypersensitive to margin pressure and demand wobbles, Apple’s combination of a big iPhone beat, a China surprise, and resilient margins was the exact cocktail bulls wanted.

IPhone was the headliner and the primary driver of the upside . iPhone revenue came in at $85.27B versus ~$78.65B expected, up 23% year-over-year, and Cook called demand “simply staggering,” noting the company exited the quarter with very lean channel inventory. That matters because Apple is now guiding the March quarter with constrained iPhone supply — not because demand is weak, but because Apple is in what Cook described as “supply chase mode” to meet unusually high customer demand. In other words: the demand signal strengthened, but it pulled forward the supply chain stress that Apple now has to manage in the near term.

Services was essentially in-line, which is notable because “in-line” is perfectly fine when the rest of the quarter is this strong. Services net sales were $30.01B versus $30.07B expected, up 14% year-over-year, and the company highlighted records across advertising, cloud services, music, and payment services. Apple TV was used as a proof point for momentum (including the return of Ted Lasso this summer), but the bigger investor takeaway is that the installed base reached 2.5B active devices globally, which keeps the Services flywheel intact even when hardware cycles fluctuate. Apple also guided Services growth for fiscal Q2 to be similar to the 14% it posted in fiscal Q1.

The rest of the product stack was mixed, with a couple of important “why’s” behind the misses. iPad revenue was $8.60B versus $8.13B expected, up 6% year-over-year. Mac revenue was $8.39B versus $8.95B expected, down 7% year-over-year — Apple explicitly framed this as a tough comparison against the prior-year quarter’s launches. Wearables, Home and Accessories revenue was $11.49B versus $12.04B expected, down 2% year-over-year, and the company said it faced AirPods Pro 3 constraints that likely capped growth. Net-net: iPhone did the heavy lifting, Services stayed steady, iPad chipped in, and the “other hardware” categories were more supply/comp driven than demand-collapse driven.

Regionally, the quarter’s plot twist was Greater China. Revenue there surged to $25.53B versus ~$21.3B expected, up 38% year-over-year, and Cook framed it as iPhone-led strength with strong double-digit store traffic growth, records for upgraders, and double-digit growth in switchers. That upside mattered not just because it’s big, but because it helped diffuse a major bear narrative around China softness. By contrast, Europe and Japan came in below some expectations (Europe around $38.1B vs ~$40B and Japan around $9.4B vs ~$10B), while the Americas print was roughly $58.53B versus $59.06B expected. The message: China flipped from “ongoing risk” to “active tailwind” in one quarter, and that alone changes how investors handicap Apple’s near-term revenue durability.

Gross margin was the other major “watch item,” and Apple delivered on both reported performance and forward commentary — with a wrinkle investors will keep circling. Company gross margin was 48.2% versus 47.5% expected, above the high end of Apple’s own prior range, driven by favorable mix and leverage (products gross margin 40.7%, services gross margin 76.5%). For fiscal Q2, Apple guided gross margin to 48%–49%, which is striking given the market’s anxiety about rising component costs. The wrinkle: Cook explicitly said memory prices will have “a bit more impact” on fiscal Q2 margins, even though memory had minimal impact in fiscal Q1. He added that Apple continues to see market pricing for memory increasing significantly beyond fiscal Q2 and will “look at a range of options” to deal with it — but he declined to speculate on whether Apple would raise product prices to offset higher memory costs (“I would not want to speculate on that one.”). Translation: margins held up, guidance held up, but the memory-cost headwind is real and could intensify later if pricing keeps rising.

Tariffs were addressed in a fairly classic Apple way: acknowledged, scoped, and wrapped in assumptions. The CFO said the outlook assumes global tariff rates, policies, and their application remain in effect as of the call, and that the macro backdrop doesn’t worsen. Apple also highlighted ongoing supply chain diversification (with meaningful iPhone production in India) as part of its broader resilience toolkit. If tariffs flare or expand, Apple is effectively telling you the framework: they’ll manage it with supply chain moves, mix, and “options” — not a pre-committed pricing playbook.

On expenses and investment intensity, this quarter offered a clean compare against mega-cap AI peers. Operating expenses were $18.4B, up 19% year-over-year, driven by R&D (R&D was $10.89B vs $8.27B last year), while capex was comparatively light at $2.37B (down from $2.94B last year). That lines up with the peer snapshot you provided: Apple revenue growth +16% in the quarter, similar to Microsoft’s +16.7% but below Meta’s +23.8%, while Apple’s capex intensity (~2% of revenue) is dramatically lower than Meta (~35.5%) and Microsoft (~37%). Apple also generated roughly $51.55B of free cash flow in the period per the same snapshot, reinforcing the “cash machine” identity even as it invests in Apple Intelligence. Apple’s approach remains: spend aggressively on R&D and ecosystem capabilities, but don’t build a hyperscaler balance sheet to prove you’re “serious” about AI.

Finally, on the stock setup and the $260 level: this print helps justify why $260 is being treated as a key battleground rather than a vanity number. A quarter with a massive iPhone beat, a China re-acceleration, and a Q2 revenue guide above consensus gives the stock fundamental oxygen — but the market will still stress-test durability via (1) memory-cost pressure into and beyond Q2, (2) iPhone supply constraints that can shift timing, and (3) how quickly Services can keep compounding while hardware normalizes. If Apple can keep gross margins anchored near the high end of its historical range even as memory inflation ramps, $260 looks less like a ceiling and more like a line the stock can defend on pullbacks. If memory costs bite harder than Apple is currently baking into the model, that same level becomes the “prove it” point for sentiment.

Key things to watch next quarter are straightforward: whether iPhone constraints are easing or worsening, whether the margin bridge shows memory inflation becoming a bigger drag, whether Greater China strength holds without needing heroic promotions, and whether Apple’s “range of options” on costs ends up being mix/supply-chain engineering or something closer to pricing power. Apple doesn’t need to be perfect from here — but with the stock’s expectations elevated, it does need to keep being Apple.