Key Morningstar Metrics for Apple
- Fair Value Estimate: USD 260
- Morningstar Rating: ★★★
- Morningstar Economic Moat Rating: Wide
- Morningstar Uncertainty Rating: Medium
What We Thought of Apple’s Earnings
Apple AAPL posted stellar December-quarter results, led by 23% year-over-year growth in iPhone revenue and over 100 basis points of gross margin expansion. March-quarter guidance implies continued high growth and further margin expansion.
Why it matters: IPhone growth was stunning, coming in about 10% higher than our model. We believe Apple is benefiting from a strong refresh cycle in 2026, driven by pent-up customer demand. Profitability also impressed us amid headwinds from memory prices and ongoing tariff costs.
- Revenue growth for China was an exceptional 38% year over year and shows a sharp inflection from two years of underperformance. We still see longer-term headwinds to Apple’s China growth, but this quarter shows the firm’s ability to compete and win against beefed-up domestic competition.
- Supply constraints are limiting Apple’s ability to meet demand, primarily for iPhone and AirPods. We expect limited supply, predominantly as Apple competes for chip production capacity at TSMC with the likes of Nvidia, to endure through the year but to have a low impact on results.
The bottom line: We raise our fair value estimate for wide-moat Apple to USD 260 per share from USD 240, reflecting stronger short-term iPhone growth and higher profitability. Shares were slightly up after hours and appear fairly valued to us.
- We now expect a strong iPhone growth cycle in fiscal 2026, with revenue growth in the low teens, up from high single digits previously. We continue to see mid-single-digit growth over the long term, but Apple is benefiting from a strong refresh cycle with the iPhone 17 family in the short term.
- Apple’s relentless gross margin expansion, despite tariffs and skyrocketing memory chip prices, is raising our expectations. We project Apple will reach a 50% gross margin in two years, up from 38% in 2020. We attribute this expansion to Apple silicon and expanding services sales.
