According to the Zhitong Finance app, John Ternus has been appointed CEO.
In its first quarterly earnings report after that, he set the tone by saying, “Apple is the best company on Earth.” Bernstein’s follow-up question was: Is it also the best stock on Earth? The report’s answer depends on what investors are looking for—if they want to avoid AI
Trading while unwilling to fully give up exposure to tech stocks, and believing that this global leading tech franchise is positioned better in AI than most people fear, the answer may be yes; but if you're looking for a clearer AI opportunity in the short term,
Winner, Apple probably isn't.
Q4: Revenue and profit both exceeded expectations; free cash flow was the only miss.
Apple's revenue for the fourth quarter of fiscal year 2026 was $114.477 billion, a 12% year-over-year increase, exceeding Bernstein's forecast by 1.6%, the market consensus by 0.9%, and surpassing the company's previous guidance of 9% to
Guidance range of 11%; diluted EPS of $2.10, up 14% year-over-year, exceeding Bernstein's 6% and the consensus of 5%. Gross margin of 47.9%, within the 47% to 48% range.
The upper end of the guidance range is 36 basis points above Bernstein and consensus; the operating margin is 31.1%, 68 and 44 basis points higher respectively.
Structurally, iPhone revenue reached $57.6 billion, up 17% year-over-year, slightly exceeding the company’s mid-double-digit guidance, driven by demand for the iPhone 18 series; Mac revenue increased 24% year-over-year.
To $10.8 billion; Greater China increased 21% year-over-year, with iPhone upgrade users reaching a record high. Service revenue increased 10% year-over-year to $31.6 billion, during which approximately $2.5 billion was incurred.
A 1.5 percentage point foreign exchange headwind; growth would have been approximately 12.5% excluding foreign exchange effects.
The only metric below consensus was cash flow: adjusted free cash flow of $25.859 billion, 8.5% above Bernstein’s estimate but approximately 19.2% below the market consensus of $32.012 billion.
The truth about iPhone's "same-size" figures: total volume is declining, while new device sales are rising
The surface numbers underestimate the strength of the new models due to a misalignment in release timing. Bernstein notes that the base models (iPhone 17, Air, iPhone 16, and 16
Plus) Adjusted for consistent comparison across periods: Total shipments in FQ4 amounted to 55 million units, a 2% year-over-year decline; however, shipments excluding the base model reached 38.854 million units, up approximately 6% year-over-year; total revenue increased year-over-year
17.5%, revenue after excluding the basic model reached $43.425 billion, up approximately 27% year-over-year. The growth was primarily driven by pricing and product mix, not sales volume.
December Guidance: Strong Revenue, Weak Gross Profit
Apple guidance for the December quarter revenue growth of 7% to 10% exceeds Bernstein's prior forecast of 4.3% and the market consensus of 6.1%. Based on the midpoint of 8.5%, service revenue guidance increases by 8% to
9% (median 8.5%), implying similar revenue growth of approximately 8.5% for products and approximately 9% for iPhone. However, this figure still underestimates upgrade intensity: including the iPhone 18 Pro/Pro
Compared to last year's iPhone 17 Pro/Pro Max combination, Bernstein preliminarily estimates revenue growth of approximately 30% to 35%, higher than the approximately...
23%. Duo remains under supply constraints, and management has not provided a timeline for normalization of supply and demand.
On a comparable basis, total shipments for the December quarter are expected to decline by 15.5% year-over-year (due to the absence of a new base model and a high base from the iPhone 17 launch), but shipments excluding the base model are expected to increase by approximately
4%, with revenue increasing approximately 30% to 35%. Management also noted that capacity constraints in advanced processes are easing, leading Bernstein to believe that its shipment forecasts carry upside risk.
Service growth rate drops to 8%–9%: App Store and Google Play authorization
December service growth guidance of 8% to 9% is below the market expectation of approximately 12% and slower than the 10% reported in September. Management attributes this to lower third-party licensed revenue and approximately 50
A one-basis-point incremental foreign exchange headwind. App Store revenue was roughly flat year-over-year in September due to weak mobile gaming and the App Store
Adjustment of cash-out rules; the company expects these headwinds to persist until the year-over-year base normalizes, but does not believe the App Store
The growth rate will further deteriorate. The weakness in third-party authorization may be related to the slowing growth in Google Search distribution payments—Google Search revenue growth has declined from 17% in Q2 2026 to 12% in Q3. Supporting factors include over
1.5 billion paid subscriptions and a continuously expanding base of active devices.
Gross margin: The main reason is the increase in storage prices; the guidance of 45%–46% is still "overestimated."
December gross margin guidance of 45% to 46% is lower than Bernstein’s already consensus-lower estimate of 46.2%. The report had previously warned ahead of earnings that rising storage costs could offset improvements in product mix and ASP from premium models.
The gains from the improvement.
Management stated that the increase in storage costs was the primary cause of the sequential decline, and that storage prices will continue to rise after December, gradually eroding the benefits of low-cost inventory; pricing actions and non-storage cost reductions can only partially offset this. Siri AI
The implementation also brings two additional pressures: increased cloud inference costs in service expenses, and the need to defer recognition of greater hardware revenue over the equipment's useful life.
More importantly, Bernstein believes that the 45% to 46% range itself overstates Apple’s underlying gross margin—this guidance benefits from an unusually favorable premium iPhone mix and low-cost storage inventory. If
The base model iPhone 18 is currently on sale this season, with an estimated gross margin approximately 30 basis points lower, at a midpoint of 45.2%. As storage costs continue to rise and the lower-priced iPhone model expected to launch in spring
The 18e dilution structure (particularly in Q3) means these one-time tailwinds will gradually fade. Bernstein has lowered its iPhone gross margin forecast from 40.5% in FQ1 '27 to 2027.
39% for the second half of the fiscal year.
Valuation: $380, representing 34x FY28 earnings, a forward 35x multiple above the five-year average.
Bernstein lowered its EPS estimates for fiscal years 2027 and 2028 by approximately 1% to $9.78 and $11.13, respectively, while keeping the 2029 fiscal year estimate largely unchanged at $12.43; revenue estimates were raised.
2%, but this was offset by declining gross margins and higher R&D expenses, with share repurchases partially mitigating the impact on net profit. After adjustments, its fiscal year 2028 and 2029 forecasts are 7% to 8% above market consensus.
The target price of $380 is based on 34 times 2028 fiscal year EPS (previously 33 times), or 31.6 times EV/FCF. The current forward P/E ratio of 35.1x is significantly higher than
Since 2016, the average has been 22.7x; over the past three years, it has been 30.0x; and over the past five years, it has been 28.2x—this is precisely the spread between the "best companies" and the "best stocks."