Morgan Stanley recalibrates its view on Apple stock ahead of earnings originally appeared on TheStreet.
Apple’s (AAPL) financial engine fires on more than just iPhones; of late, we’ve seen one high-margin segment punching above its weight.
As it heads into its next earnings report, that trend could matter much more than expected.
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Also, if you follow the models, one firm’s quiet recalibration might be the telltale sign of what’s to come for Apple stock.
Sometimes, it’s the side businesses that steal the show.
Apple opened fiscal 2025 with a couple of powerful beats, which surprisingly attracted a muted response from Wall Street.
In the December quarter (Q1 2025), Apple posted all-time high sales of $124.3 billion, up 4% from a year ago, while delivering a $2.40 diluted EPS, representing a 10% jump.
The March quarter (Q2 2025) then kept up that momentum, with $95.4 billion in sales, representing 5% growth year-over-year and a record $1.65 EPS for the period.
The iPhone 16 was a smashing success, pushing iPhone revenue up 2% to $46.8 billion. Macs and iPads surprised, climbing 7% and 15%, respectively.
Related: Veteran analyst drops surprise call on Tesla ahead of earnings
However, it was Apple’s Services segment that stole the show again, which is up 12% to $26.6 billion, thanks to App Store strength, Apple Music, and cloud offerings. Gross margins held near firm 47%, giving Apple a healthy cushion.
Still, Tim Cook isn’t ignoring the risks.
He said that potential U.S. tariffs could shave up to $900 million off quarterly profit. In response, Apple’s been ramping up iPhone assembly in India and Vietnam to efficiently spread out its supply chain risk.
It’s also embracing AI with open arms.
Over the holidays, it rolled out “Apple Intelligence,” layering in generative features into iOS, such as smarter Siri prompts and AI-edited photos.
Nonetheless, a pending antitrust ruling could force App Store changes that significantly impact in-app revenues.
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That said, in reassuring its investors, Apple announced a whopping $100 billion buyback and raised its dividend to 26 cents per share.
Nevertheless, the stock is still down about 15% year to date.
Ahead of its Q3 earnings report in a few days, Apple just got a jolt from a familiar cash cow in the App Store.
