AAPL Q1 Earnings Call: Growth Across Core Products, AI Integration, and Tariff Risks

iPhone and iPad maker Apple (NASDAQ:AAPL) reported Q1 CY2025 results beating Wall Street’s revenue expectations, with sales up 5.1% year on year to $95.36 billion. Its non-GAAP profit of $1.65 per share was 1.7% above analysts’ consensus estimates.

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StockStory’s Take

Apple’s first quarter results reflected year-over-year sales growth across iPhone, Mac, and iPad, with management highlighting new product launches and an expanding installed base as key contributors. CEO Tim Cook pointed to the iPhone 16 family and the new M3-powered iPad Air as major drivers, while also noting that over half of iPad purchasers this quarter were new to the product. Mac revenue also rose, benefiting from refreshed hardware and broader adoption in enterprise settings.

Looking ahead, Apple’s leadership emphasized the integration of generative AI features—referred to as Apple Intelligence—across its device lineup. Cook acknowledged ongoing supply chain changes and the impact of tariffs, describing the external environment as uncertain and explaining, “For the June quarter, currently, we are not able to precisely estimate the impact of tariffs as we are uncertain of potential future actions prior to the end of the quarter.” Management outlined continued investment in R&D and new manufacturing capacity as priorities, while cautioning that future gross margins may fluctuate due to product mix, new launches, and evolving trade policies.

Key Insights from Management’s Remarks

Apple’s management attributed the quarter’s financial performance to growth in core hardware categories and the company’s ability to attract new users, while also addressing industry-wide concerns about tariffs and supply chain resilience.

• iPhone and iPad Momentum: The iPhone 16 lineup and the M3-powered iPad Air drove revenue growth, with Cook stating that iPhone upgraders grew double-digits and more than half of iPad buyers were first-time purchasers.
• Mac Gains and Enterprise Adoption: Mac revenues increased due to updated MacBook Air and Mac Studio models, with strong demand from both upgraders and business customers, such as KPMG and New Bank integrating Mac devices into their operations.
• Services Expansion: Services revenue reached an all-time high, but management refrained from providing forward-looking detail due to macro and regulatory uncertainty, particularly around changes in Europe’s app store regulations.
• Tariff and Supply Chain Adjustments: Apple shifted the majority of U.S.-bound iPhone production to India and other products to Vietnam to mitigate tariff impacts. Cook described the company’s approach as ongoing diversification to reduce geographic concentration risk.
• AI Feature Rollout and Delays: The rollout of Apple Intelligence features was highlighted as a differentiator, but management disclosed that some advanced Siri capabilities are delayed, with Cook noting, “We need more time to complete our work on these features so they meet our high-quality bar.”

Drivers of Future Performance

Management’s outlook for the rest of the year centers on product innovation, further AI integration, and navigating trade policy uncertainty, while also monitoring consumer demand across geographies.

• AI and Software Capabilities: Apple is prioritizing the expansion of generative AI-driven features across devices, aiming to boost user engagement and future upgrade cycles. Leadership sees these capabilities as essential for maintaining product differentiation.
• Manufacturing and Supply Chain Shifts: Continued relocation of manufacturing to India and Vietnam is expected to help mitigate tariff-related risks, but management cautioned that future cost impacts remain uncertain due to ongoing global trade investigations.
• Macroeconomic and Regulatory Risks: The company is monitoring headwinds from changes in digital market regulations, especially in Europe, and potential legal outcomes that could affect its Services business profitability.

Top Analyst Questions

• Erik Woodring (Morgan Stanley): Asked about the future mix of U.S.-bound iPhone production and whether 100% could be sourced from India. Cook replied that the majority will come from India this quarter but would not predict future percentages.
• Ben Reitzes (Melius): Questioned whether the $900 million tariff impact could increase after the June quarter. Cook said it was difficult to predict beyond June due to ongoing trade investigations and policy changes.
• Michael Ng (Goldman Sachs): Inquired if Apple would continue building ahead inventory to counter tariff risks, and how increased costs might affect consumer pricing. Cook said operational teams will continue optimizing supply chains but had no pricing changes to announce.
• Wamsi Mohan (Bank of America): Asked how sourcing more from the U.S. and India would affect gross margins long-term. Parekh explained that margin impacts are already reflected in guidance and depend on product mix and lifecycle cost reductions.
• Richard Kramer (Arete Research): Sought clarity on delays to advanced Siri features and whether investment or organizational issues were to blame. Cook attributed the delay to the time required to meet Apple’s quality standards, not underinvestment.

Catalysts in Upcoming Quarters

In future quarters, StockStory analysts will watch for (1) the pace and consumer reception of new AI features as they expand across devices and languages, (2) the effectiveness of ongoing manufacturing shifts in reducing tariff exposure and supporting gross margins, and (3) regulatory developments in digital markets and legal cases impacting the Services segment. The ability to maintain customer growth in key international markets will also be a significant marker for execution.

Apple currently trades at a forward price-to-earnings ratio of 26.5×. Is the company at an inflection point that warrants a buy or sell? Find out in our free research report.

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