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Apple is playing the long game in AI

Shares of Apple sunk after a mixed bag earnings report.

Apple CEO Tim Cook.

Nic Coury/Getty Images

3 min read

It turns out that sometimes sitting out can help you get ahead.

That seems to be the case for Apple, which opted out of spending big to compete with its Silicon Valley peers in the AI infrastructure arms race. That decision proved wise this week after China’s DeepSeek appeared to compete with models from Open AI and Google at only a fraction of the cost.

And the most valuable company in the world managed to beat profit and revenue expectations in its first quarter. But the financial results, announced yesterday, weren’t a total victory lap, causing shares to dip 0.67%.

Let’s start with the good news:

  • Revenue rose 4% over the quarter, coming in at $124.3 billion, higher than the $124.12 billion estimated.
  • Apple reported EPS of $2.40, beating the $2.35 estimated by analysts.
  • But what really relieved investors was its forward looking guidance: The firm said it expected revenue growth of “low to mid single digits” for the current quarter ending in March.

Apple of the Street’s eye: A slew of Wall Street pros raised their price targets on the stock after the announcement, including analysts from Jefferies, Citi, JPMorgan, Morgan Stanley, and DA Davidson.

Apple Intelligence has a lot to learn

There were signs of cracks in the company’s key iPhone business, and even bulls agreed that Apple’s AI aspirations are still a long way from matching the hype CEO Tim Cook promised.

  • Customers weren’t picking up Apple Intelligence's call. IPhone sales declined last quarter, with revenue coming in at $69.14 billion, below expectations of $71.03 billion. It was Apple’s biggest iPhone miss in two years and an ominous sign for the iPhone 16 in the first quarter of its rollout.
  • Sales in China dropped 11% amid the country’s economic slowdown.

What the analysts have to say:

  • “China remains a key wildcard, but Apple Intelligence is bolstering iPhone performance in regions where available, setting up a return to iPhone growth in FY26,” Morgan Stanley analyst Erik Woodring wrote.
  • Just stay patient, argued Wedbush analyst Dan Ives: “The Nvidia AI Revolution essentially happened overnight....Apple’s AI Consumer Revolution will happen over the course of 12–18 months and with almost 2.4 billion iOS devices including 1.5 billion iPhones this speaks to our firm bullish thesis on Cupertino and Cook & Co. over the next year,” wrote Ives.
  • Not everyone thinks Apple can justify its $3.5 trillion market cap: “Despite our favorable view of the company and its fundamentals, we see Apple’s valuation implying overly rosy expectations for long-term growth,” explained Morningstar senior analyst William Kerwin. —LB

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