Wall Street analysts appeared to breathe a sigh of relief after Apple’s (AAPL) first quarter earnings modestly beat analysts’ forecasts and the company’s explanation of falling iPhone sales in China eased their anxieties.
Apple on Thursday reported earnings per share of $2.40 on revenue of $124.3 billion — higher than the EPS of $2.35 and revenue of $124.1 billion analysts had anticipated, according to Bloomberg consensus estimates. At the same time, Apple’s iPhone revenue in China declined 11% from the prior year, with overall China sales falling more than Wall Street expected.
But Apple CEO Tim Cook had a reason for that: “Over half of the decline that we experienced was driven by change in channel inventory from the beginning to the end of the quarter,” he said in a post-earnings call with analysts. In other words, the company strategically reduced the number of iPhones it shipped to suppliers in Greater China, meaning that, on the whole, the decline in China iPhone sales wasn’t necessarily due to weaker demand.
Actually, he said quite the opposite: “Part of the reason for that is that our sales were a bit higher than we forecasted them to be toward the end of the quarter. And so we ended a little leaner than we had expected to.”
JPMorgan (JPM) analyst Samik Chatterjee raised his price target on Apple to $270 from $260, reiterating his Buy rating and pointing to Cook’s commentary. Chatterjee also noted that recent Chinese subsidies announced in late January could support sales in the region.
Cook also said that Apple Intelligence helped drive a record number of iPhone upgrades, indicating that China sales could get a boost if and when the AI features are approved for rollout by the Chinese government.
Citi’s (C) Atif Malik also maintained his Buy rating on the stock, noting the results were “better than feared.”
“Critically, AAPL comments indicating the initial regions where iPhone AI features have been rolled out are outperforming other geos should support sentiment on the stock,” he added. Apple shares rose as much as 3% in early trading Friday.
Raymond James (RJF) analyst Srini Pajjuri suggested that Apple is better positioned than its “Magnificent Seven” peers to navigate an AI bubble: “We believe Apple is uniquely positioned to offer on-device AI features given its ecosystem strength, hardware capabilities, and privacy focus.”
“On-device AI has lower capex needs and offers faster monetization potential through consumer hardware upgrades, which we think makes AAPL stock particularly attractive as the debate surrounding GenAI monetization/ROI continues.”
Big Tech stocks plummeted earlier this week after a Chinese AI model on DeepSeek cast doubt on companies’ rationale behind their hundreds of billions of dollars in capital expenditures related to building out their data center infrastructure to support artificial intelligence.
Apple, seen as slightly behind in the Big Tech AI race, has been more judicious with its pocketbook than its Magnificent Seven peers.
“From a capex point of view, we’ve always taken a very prudent and deliberate approach to our expenditure,” Cook told analysts. Apple stock rose on news of DeepSeek as the model raised hopes that better, cheaper on-device AI applications could boost iPhone use.
“Apple’s AI ambitions are far more contained than the majority of the Mag 7 (or other frontier model developers),” Morgan Stanley analysts wrote this week.
But Jefferies analyst Edison Lee, who downgraded Apple to Underperform last week, was more skeptical than his peers on Wall Street.
“When AI services will become attractive to smartphone users remains unclear. Hence we still believe market expectations for iPhone’s upgrade cycle in the next two years are too high.”
Laura Bratton is a reporter for Yahoo Finance. Follow her on Bluesky @laurabratton.bsky.social. Email her at laura.bratton@yahooinc.com.
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