iPhone and iPad maker Apple (NASDAQ:AAPL) met Wall Street’s revenue expectations in Q4 CY2024, with sales up 4% year on year to $124.3 billion. Its GAAP profit of $2.40 per share was 2.5% above analysts’ consensus estimates.

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“Through the power of Apple silicon, we’re unlocking new possibilities for our users with Apple Intelligence, which makes apps and experiences even better and more personal. And we’re excited that Apple Intelligence will be available in even more languages this April," said Tim Cook, Apple’s CEO.

Key Topics & Areas Of Debate

On June 10, 2024, Apple held its Worldwide Developers Conference. The splashy announcement was Apple Intelligence, which combines GenAI with user-specific data to enhance personalization across its ecosystem. This new feature is powered by a combination of internally developed large-language models (LLMs) and OpenAI's GPT-4.0.

The holiday season will be a big test for Apple since the iPhone 16 was released on September 20, 2024 - backward compatibility with Apple Intelligence is limited, so the market is waiting to see if this integration will spur a large, multi-year device upgrade cycle. A potential upgrade cycle would lead to spikes in shipment volumes, which could also increase its higher-margin Services revenue.

Before the Apple Intelligence announcement, some investors were bemoaning Apple’s seeming lack of participation in the AI wave. How did a company that introduced Siri in 2011 fail to introduce a ChatGPT-like platform before OpenAI? This is a critical juncture where the misstep could be forgotten if the company re-establishes itself as a major AI player.

Samsung (KOSE:A005930) is Apple’s main competitor in the worldwide smartphone market while its mobile operating system competes with Alphabet's (NASDAQ:GOOGL) Android. Regarding other devices and services, competitors include Microsoft (NASDAQ:MSFT) in MacBooks, Netflix (NASDAQ:NFLX) in Apple TV, and Spotify (NYSE:SPOT) in Apple Music.

Revenue Growth

Apple (with its installed base of 2 billion+ devices) shows that growth and massive scale can coexist despite the conventional wisdom about the law of large numbers. The company’s revenue base of $267.7 billion five years ago has increased to $395.8 billion in the last year, translating into a decent 8.1% annualized growth rate.

In light of its big tech peers, however, Apple’s growth trailed Amazon (18.5%), Alphabet (17%), and Microsoft (14.3%) over the same period. Comparing the four is relevant because investors often pit them against each other to derive their valuations. When adjusting for these benchmarks, we think Apple is expensive.

We at StockStory emphasize long-term growth, but for big tech companies, a half-decade historical view may miss emerging trends in AI. Apple’s recent history shows its demand slowed as its annualized revenue growth of 1.1% over the last two years is below its five-year trend.

This quarter, Apple grew its revenue by 4% year on year, and its $124.3 billion of revenue was in line with Wall Street’s estimates. Looking ahead, sell-side analysts expect revenue to grow 6.3% over the next 12 months. This projection illustrates the market thinks that AI, in the form of Apple Intelligence, could catalyze better top-line performance. However, its anticipated growth is still a far cry from its heyday in the 2010s.

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Products: Steve Jobs’s Legacy

Apple’s Products segment includes everything from its flagship iPhone, iPad, and MacBook computers to AirPods and Apple Watch. We are closely monitoring whether the GenAI-powered Apple Intelligence, which was released in September 2024 but has limited interoperability with older devices, can spur an upgrade cycle for the company.

Products sales are by far the biggest chunk of Apple’s revenue at 74.9%, and they grew by 6.2% annually over the last five years, slower than total revenue. Recently, demand went south as its sales dropped at an annual clip of 1.9% over the last two years. Apple could really use that upgrade cycle right about now.

This quarter, Products sales were up 1.6% year on year, in line with Wall Street’s estimates. Holding aside expectations, the recently improved rate of change shows that more customers are upgrading their devices than before. We’ll be watching to see if Apple Intelligence and iOS 18 can accelerate this trend. Wall Street is pricing the stock like it will.

Key Takeaways from Apple’s Q4 Results

Apple’s total revenue met analysts’ expectations this quarter, but looking under the hood, we can see its Services segment outperformed. This business line helped the company beat Wall Street's operating income and EPS estimates because it has higher margins than its hardware-oriented Products segment. Zooming out, we think this was a decent quarter featuring some areas of strength. The stock remained flat at $235.52 immediately following the results.

Should you buy the stock or not? The latest quarter does matter, but not nearly as much as longer-term fundamentals and valuation, when deciding if the stock is a buy. We cover that in our actionable full research report which you can read here, it’s free.