Apple delivered a strong December quarter. China was the most notable upside, with revenue up 38% y/y versus expectations for flat to modest growth. This marked a sharp reversal from the roughly 5% average quarterly declines seen over the prior two years and brought China revenue back near its 2021 peak. The rebound underscores the durability of Apple’s brand in a market that had been viewed as a losing cause.

Importantly, the quarter was not solely about China. Backing out China, implied iPhone growth was approximately 17% y/y versus Street expectations of 13%, indicating broader global demand strength. Gross margin came in above expectations at 48.2% vs. the Street at 47.5%, reflecting effective cost and pricing management in a difficult memory and component environment.

The installed base further reinforced this strength. Active devices surpassed above 2.5B, growing up 6.5% y/y versus up 6.8% last year and 10% two years ago. While growth has moderated, the scale and continued expansion of the ecosystem point to a healthy customer base that remains engaged and willing to upgrade, even without a near-term AI catalyst.

March guidance was notably strong. Apple guided to 13–16% y/y revenue growth versus the Street at 10%, and did so explicitly. Management cited supply constraints tied to memory availability following an exceptionally strong December quarter, noting that inventory drawdowns limited the ability to fully meet March demand.

This constraint implies underlying demand is stronger than guidance suggests. Absent supply limitations, March growth likely would have been closer to the mid-to-high teens. As a result, revenue is effectively being pushed into the June quarter. Street expectations for June, previously around 6% y/y growth, are likely to move toward 8%, and eventually end closer to 10% as estimates reset.

On margins, Apple guided to 48–49% for March, roughly flat to slightly up sequentially, consistent with normal seasonality. While management flagged potential pricing pressure as contracts are renegotiated in the back half of the year, the likely impact appears modest at roughly 100–150 basis points at most and not indicative of any structural change to profitability.

Despite strong results and guidance, the stock reaction was muted, up 1% in after hours. I believe this reflects an AI credibility gap rather than concerns about the underlying business. Investors continue to want to hear more detail on when and how AI will meaningfully impact Apple’s growth.

Context matters. Apple AI expectations peaked following the June 2024 announcement of Apple Intelligence, which positioned AI as having a quick impact on growth. In the end, the most important AI features never shipped, leaving Apple with a black eye and resetting how the company communicates upcoming AI features. Since last summer, Apple’s AI communication strategy has been say less and show more. While consistent with Cook’s execution first philosophy, this approach has left investors wanting more, especially as other Mega Cap Tech peers aggressively detail how AI is reshaping their businesses.

On the call, Cook reiterated that a new Siri, effectively shorthand for next generation Apple Intelligence, is coming this year, but provided no additional details. References to collaboration with Google’s Gemini were positive but lacked substance. Apple also made no mention of its recently reported $2B acquisition of an Israeli AI audio company, which could have served as a tangible signal of progress across AirPods, iPhone, or future wearables.

The result is a widening gap between thrilled customers and frustrated investors. Customers are more than satisfied, as evidenced by device growth, margins, and revenue momentum into March and June. Investors, however, remain in wait and see mode on AI. Until Apple provides clearer substance or demonstrates its capabilities in market, I expect this tension to persist, even as fundamentals continue to perform.

Disclaimer