Apple (NASDAQ: AAPL) delivered better-than-expected financial results for its latest quarter, but that wasn’t good enough for Wall Street, which sent the tech giant down $25 in pre-market.
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The company reported $109.42 billion in revenue for its fiscal third quarter, beating Wall Street’s estimate of $108.65 billion. Strong sales of iPhones, Mac computers and wearable devices helped drive the results.
However, AAPL also warned that revenue growth will slow in the current quarter.
The company expects growth of 9% to 11%, below analysts’ forecast of 12%. That outlook sent Apple shares down nearly 8% after the earnings report.
Apple’s biggest products continued to perform well.
Revenue from the iPhone, Mac and wearables businesses all came in above expectations. But not every part of the company had a strong quarter. Sales from Apple’s Services division, which includes iCloud, Apple Music and the App Store, came in slightly below expectations. iPad revenue also missed Wall Street’s estimates.
However, while the company says demand for its products remains strong, the company can’t make enough devices to keep up. Chief Financial Officer Kevan Parekh said shortages of important components are limiting production, especially for the iPhone. Higher memory prices are also increasing Apple’s costs, putting pressure on profit margins.
Analysts are Still Bullish
JPMorgan believes the company’s biggest challenges are temporary. Supply shortages may delay sales rather than eliminate them altogether, meaning AAPL could recover some of that revenue in future quarters.
And despite lowering some price targets, most Wall Street firms continue to recommend buying AAPL. Morgan Stanley expects near-term pressure but believes future product launches could lift shares. The firm has an overweight rating on the stock, with a price target of $340 a share. The firm also noted that:
“The headwinds in relation to supply and costs are combining with incremental pressure from FX headwinds into the Sep-Q to lead to an F4Q (Sep-Q) revenue and underlying gross margin (excluding tariff refunds) outlook, both of which are below our and Street expectations. However, in thinking about the long-term ramifications of the above headwinds, we expect: 1) supply constraints to primarily push out revenue realization from the strong demand cycle into the future quarters rather than being lost revenue; and 2) FX headwinds are likely to turn more benign starting the Dec-Q if current rates hold,” as quoted by CNBC.
Goldman Sachs has a buy rating, with a price target of $360. The firm, as quoted by CNBC, said that, “Although results and the forward quarter guidance clearly disappointed, we think sentiment should improve over the next 1-2 quarters as (1) price increases (Mac, iPad, and eventually iPhone) and price/mix from premium products drive upside to revenue and mitigate margin headwinds (though acknowledging continued cost inflation); (2) volume declines prove better-than-expected as affordability measures (e.g., Apple Upgrade program), new product innovation (e.g., Siri AI, new Mac, iPad, home products), and education & enterprise share gains help mitigate price-volume elasticity; and (3) Services growth stabilizes from increased demand for iCloud+ (tokens) and AppleCare+ (product momentum).”
Citi expects the company’s next iPhone launch and expanded Siri AI features to become important growth drivers. The firm has a buy rating, with a $365 price target.
Bank of America says Apple’s Services business still has plenty of room to grow, especially as the company introduces more AI-powered features. The firm has a buy rating, with a price target of $380 a share.
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AAPL delivered a solid quarter, beating revenue expectations and showing strong demand for many of its products. But investors were more focused on slower growth, supply shortages, and uncertainty surrounding Apple’s AI strategy.
While the next few quarters could remain challenging, most analysts believe the company’s long-term outlook is still strong. Upcoming iPhone launches, new AI features, and improving supply conditions could help the company regain momentum.
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