Apple’s decision to keep iPhone prices unchanged is expected to drive its strongest third-quarter (ending in June) sales growth in five years, though investors want to know how much longer the company can hold off a potential price increase.
The company raised prices on the iPad and MacBook last month as it tried to offset rising costs from a shortage of memory and storage chips driven by the massive buildout of AI data centers, according to a Reuters report.
What stayed untouched, however, was Apple’s real cash cow: the iPhone. That’s even as rivals in the smartphone market were forced to pass higher costs on to customers, which drove global device shipments in the April-June quarter down to their lowest level in 13 years.
Apple’s approach paid off: iPhone shipments rose 3%, and the company’s market share climbed to nearly one-fifth, according to research firm Counterpoint.
That, combined with the fact that Apple hasn’t poured hundreds of billions of dollars into data centers, has helped it reclaim the title of world’s most valuable company from Nvidia after two years, as doubts grow over the AI spending boom.
Apple shares, up almost 25% so far this year, briefly pushed the company’s value above $5 trillion for the first time on Tuesday, and have far outperformed the rest of the “Magnificent Seven” stocks.
“Apple was initially looked down on by many investors because it didn’t join the AI investment cycle. Now it’s actually being rewarded as investors question the relationship between Big Tech spending and returns on that investment,” said Dan Morgan, a portfolio manager at Synovus Trust, which holds Apple shares.
Last week, Alphabet surprised investors with negative free cash flow for the first time in its history, Reuters notes.
Morgan also said he expects Apple to raise prices later this year, which could dent demand and pressure a company whose high valuation leaves “not much room for error.” Analysts expect Apple to raise prices when it launches its new iPhone lineup, typically in September. Earlier this month, the company raised the price of Apple Music and Apple One, its multi-service subscription bundle.
iPhone to drive strong revenue growth
Apple is expected to report revenue up 15.5% to $108.65 billion for the April-June period, the company’s fiscal third quarter, according to data compiled by LSEG. That’s slightly slower than the prior three months but still marks the strongest third-quarter sales growth since 2021.
Profit growth is also expected to slow slightly to 18.1%, as gross margin narrows to 47.9% from 49.3% in the prior quarter.
Some analysts said the popularity of Apple’s devices and its strong ecosystem will likely prevent any major drop in iPhone demand from the price increases, which could help protect profit margins.
Morgan Stanley analysts said demand for Apple’s core products has been somewhat inelastic, with the iPhone the least price-sensitive product in Apple’s lineup, followed by the Mac and then the iPad — meaning the recent price increases are unlikely to meaningfully disrupt demand, especially given supply-side challenges facing competitors.
iPhone sales likely rose 20.8% in the quarter, also marking the strongest third-quarter growth since 2021. Mac revenue growth is expected to improve to 8.7% from 5.7% in the prior quarter despite the price hike, while iPad sales are expected to slow slightly to 5.2% from 8% in the second quarter.
