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Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
Key Takeaways
- Resilient Performance Amid Headwinds: Apple defied market concerns with better-than-expected revenue and strong iPhone 17 sales, particularly in China, showcasing robust consumer demand despite rising costs and competitive pressures.
- Strategic Inflection Points: The impending CEO transition to John Ternus, alongside a critical pivot in AI strategy and a significant shift in capital allocation (scrapping the “net neutral” cash policy), signals a new era for the $4tn tech behemoth.
- Navigating Future Growth & Margins: While current gross margins benefited from inventory, the company faces increasing memory chip costs and investor scrutiny over its long-term AI vision, necessitating a delicate balance between pricing power and market share gains.
Apple, the world’s pre-eminent $4tn smartphone maker, delivered a performance that largely assuaged investor anxieties, forecasting better-than-expected growth on the back of another quarter of robust sales. The company’s “most popular” iPhone model ever proved a formidable growth engine, even as the tech giant braces for its first change of chief executive in 15 years—a transition that carries significant weight for its strategic direction and market perception.
For the three months to the end of March, Apple significantly surpassed Wall Street’s revenue expectations, reporting a staggering $111.2bn, marking a substantial 17 per cent increase from a year prior. This impressive top-line growth is projected to continue into the current quarter, with Apple forecasting similar double-digit expansion, a testament to its enduring brand power and ecosystem stickiness in a competitive global market.
Tim Cook, the outgoing Apple CEO, attributed these “strongest ever financial results for this period of the year” to “extraordinary demand” for the iPhone 17 family. This second consecutive quarter of double-digit sales growth injects considerable momentum into Apple’s narrative as Cook prepares to hand over the reins to hardware chief John Ternus in September. The continuity implied by Ternus’s initial public comments, where he pledged adherence to Cook’s “deep thoughtfulness, deliberateness and discipline when it comes to the financial decision-making of the company,” likely provides a degree of reassurance to investors seeking stability during such a pivotal leadership change.
“We have an incredible roadmap ahead,” Ternus teased analysts, maintaining Apple’s characteristic secrecy by quipping, “you’re not going to get me to talk about the details.” This blend of strategic continuity and future innovation promises to be a key theme for the market in the coming quarters. Cook himself emphasized that the timing was opportune for a transition, given the business’s exceptional performance, suggesting a handover from a position of strength rather than necessity.
Apple’s robust forecast of 14-17 per cent year-over-year sales growth for the current quarter far outstrips Wall Street estimates compiled by Visible Alpha, leading to a modest 1.9 per cent rise in shares during after-hours trading. This immediate, albeit tempered, positive reaction underscores the market’s appreciation for strong guidance, especially from a company of Apple’s scale, which often acts as a bellwether for the broader tech sector and consumer spending trends.
A granular look at the financials reveals that iPhone sales surged over 20 per cent to $57bn in the first three months of 2026. This growth was significantly bolstered by a powerful rebound in China, where sales for the iPhone 17 contributed to a total revenue of $20.5bn from the region, up 28 per cent year-on-year. This resurgence in China is particularly noteworthy, given previous concerns about local competition and geopolitical tensions impacting Apple’s performance in one of its most critical markets. “The iPhone 17 family is now the most popular line-up in our history . . . we believe we gained market share during the quarter,” Apple’s chief financial officer Kevan Parekh confirmed to the FT, highlighting the iPhone’s continued competitive edge.
Despite these two quarters of record sales and impressive forecasts, Apple’s stock has remained largely flat year-to-date. This divergence between strong operational performance and tempered stock appreciation reflects deep-seated investor concerns, primarily centered around its perceived lagging AI strategy, escalating cost pressures, and the fundamental question of where the next major phase of device growth will originate.
Like its peers across the consumer electronics spectrum, Apple is grappling with a significant uptick in memory chip costs. This spike is largely a collateral effect of the massive, industry-wide surge in demand for high-performance chips required to build sophisticated AI data centers, creating a ripple effect across the semiconductor supply chain. This inflationary pressure on essential components raises valid concerns about a potential hit to Apple’s notoriously healthy product margins. Indeed, the company proactively increased prices for its MacBook Air and Pro laptops last month, a move that signals its intent to manage cost inflation, but also tests consumer price sensitivity.
Cook acknowledged these challenges, stating he expects memory costs to have an “increasing impact on our business” throughout the remainder of the year. He also highlighted that supplies of iPhones and Macs had been “constrained” due to Apple having “less flexibility in the supply chain than we normally would,” underscoring the broader logistical challenges facing the tech industry.
Yet, in a testament to its operational prowess, Apple managed to increase its gross margins to an impressive 49.3 per cent, up from 47 per cent a year ago. Cook explained that strategically utilizing its inventory of chips acquired at lower prices had helped to defer the immediate impact of rising costs. However, the company projects a slight moderation, expecting margins between 47.5 per cent and 48.5 per cent in the current quarter. “The key question will be deciding the perfect balance . . . between increasing prices and maintaining profitability, or focusing on gaining share by not increasing prices,” commented Nabila Popal, senior research director at market intelligence firm IDC, articulating the critical strategic dilemma Apple faces.
Beyond costs, investors are keenly awaiting definitive signs that Apple’s AI capabilities have caught up with its Big Tech rivals, especially after what many perceive as a faltering start nearly two years ago. Unlike many of its peers, Apple has largely sat out the expensive race to build massive AI infrastructure, instead relying on external models. A significant move in January saw it strike a deal to integrate Google’s advanced AI models, with market expectations now firmly set on the unveiling of a new, AI-powered Siri voice assistant at its developer conference in June, after considerable delays. This event is seen as a crucial inflection point for how Apple positions itself in the rapidly evolving AI landscape.
To further stimulate device sales and diversify its hardware portfolio, following the success of the iPhone 17 series, Apple is reportedly scheduled to announce a foldable smartphone in the autumn. This move into a nascent but growing form factor would pit it directly against competitors like Samsung, which has already established a significant presence in the foldable market.
Mac revenue also showed resilience, reaching $8.4bn, up about 6 per cent year-on-year, propelled by the March launch of its affordable $599 MacBook Neo laptop, targeting a broader segment of the market.
Crucially, Apple’s services revenue—encompassing high-margin businesses like the App Store and iCloud—continued its upward trajectory, growing to $31bn and comfortably beating expectations. This segment remains a vital pillar of Apple’s profitability and a key driver for recurring revenue, offering a degree of insulation from the cyclical nature of hardware sales. Net income also surpassed forecasts, reaching $29.6bn, an increase of approximately 19 per cent year-on-year.
In a significant move demonstrating its confidence and commitment to shareholder returns, the company announced a $100bn share buyback plan, consistent with its historical capital allocation strategies. It also boosted its quarterly dividend by 4 per cent to $0.27 per share. Perhaps even more impactful from a strategic finance perspective, CFO Parekh announced Apple would scrap its long-standing “net neutral” policy, adopted in 2018, which aimed for roughly equal amounts of cash and debt. This pivotal shift will allow the company to pursue “more optimal economic decisions” by independently evaluating its cash and debt management, potentially freeing up capital for future acquisitions, increased R&D, or further shareholder distributions, giving it greater financial flexibility.
Finally, Cook addressed external factors, confirming that Apple could seek a refund on billions of dollars in US tariff costs shouldered last year, following a Supreme Court ruling against emergency duties. “We plan to reinvest any amount we receive back into US innovation and advanced manufacturing,” Cook stated, indicating a commitment to domestic investment that could resonate positively with policymakers and contribute to the US industrial base.
Market Impact
Apple’s robust earnings and optimistic forecast send a positive signal across the technology sector, suggesting enduring consumer demand for premium devices even amidst inflationary pressures. Its performance, particularly the rebound in China, could alleviate concerns about the market’s health in a key geopolitical region, potentially boosting sentiment for other global brands. The impending CEO transition, coupled with a more aggressive stance on AI and a flexible capital allocation strategy (as indicated by the shift from “net neutral” cash policy), positions Apple for a potentially more dynamic future, which could trigger a re-evaluation of its stock valuation by investors. The company’s significant share buyback will provide a floor for its stock and boost EPS, while its navigation of rising memory chip costs and supply chain constraints will serve as a crucial barometer for the wider semiconductor industry and global manufacturing sectors. Ultimately, Apple’s ability to seamlessly integrate advanced AI features and successfully launch new product categories like foldable smartphones will largely determine its trajectory in the competitive tech landscape and its continued influence on major market indices.