Apple on Thursday night reported a strong quarter, capping off a busy week with blockbuster gains. CEO Tim Cook announced his departure ahead of the release, clearly a move to ensure the news didn’t overshadow the company’s impressive performance. According to LSEG, Apple’s revenue for the second quarter of fiscal 2026 (ending March 31) rose 17% to $111.2 billion, significantly exceeding expectations of $109.7 billion. Earnings per share rose 22% to $2.01, beating expectations of $1.95, LSEG said. AAPL 1Y Mountain Apple 1-Year Results In fact, this was the company’s best March quarter ever, with Apple shares soaring 4% in after-hours trading to about $282. If it ends Friday at this level, it will fall just short of December’s all-time high. Conclusion Cook will be at the helm for a little longer, but it’s clear that incoming CEO John Ternus will inherit a very strong hand. Sales exceeded expectations in all product categories, with growth accelerating quarter over quarter in our highly profitable services business. Even better, the company was able to expand margins on both products and services to levels above what the Street was looking for, so profit growth outpaced sales growth. Apple once again achieved its highest ever installed base of active devices (more than 2.5 billion units) across all product categories and geographic segments. This is very important. Because while we’re still waiting for more information about Apple’s Siri AI initiative, Cook assured us on the phone that a “more personalized Siri” is indeed coming this year. Because the opportunity for Apple to formally enter the generative/agent AI race is as strong as ever. Apple has chosen Google as its AI partner. “We’re also happy with the work we’re doing independently,” Cook said. While the services sector punches well above its weight class thanks to a gross margin profile that is nearly twice that of the product category, the installed base of active devices represents the gateway for selling these services. Therefore, the larger the installed base, the larger the overall market that Apple’s highly profitable services can serve. Finally, regarding stock repurchases, Apple’s board approved an additional $100 billion stock repurchase program and a 4% increase in the company’s cash dividends. Notably, Chief Financial Officer Kevan Parekh said on the conference call that “we plan to continue our capital allocation philosophy of first making all necessary investments to support the business and then returning excess cash to shareholders over time. Net cash neutrality is a valuable framework for our capital structure. “Since 2018, we have significantly right-sized our balance sheet, reducing net cash by more than $100 billion. As we move forward, we will no longer be publicly reporting net cash neutrality and will instead evaluate cash and debt independently.” We do not expect this to be an issue, as management clearly still believes share buybacks make an important contribution to overall shareholder value creation. Why We Own It Apple’s dominant hardware and high-margin services businesses offer a deep competitive moat and rich bundling opportunities. Competitors: Samsung, Xiaomi, OPPO, Dell, HP Inc. Latest Purchase: April 8, 2014 Purchase Started: December 2, 2013 These results once again demonstrate why you shouldn’t take advantage of a consistently best-in-class name like Apple. You own it for the long haul. Despite concerns about tariffs, energy prices, and rising memory costs, which are probably the most impactful factors for Apple’s profit margins, the team has done a great job of navigating cross-currents. Certainly, memory prices will continue to be a significant headwind in the coming quarters, but we are confident that management will continue to effectively navigate the environment. We now believe that the stock’s price movement from the March lows of the Iran War is reliable. An AI update is scheduled for later this year, setting the stage for the stock to reach new highs. We reiterate our $300 price target and Hold equivalent rating of 2. CEO Transition As for why he decided to announce his departure now, Cook said it was the right time for several reasons. “Firstly, our business is doing very well. We had a very strong first half of this year, with double-digit growth year-over-year. Second, our roadmap is incredible. Most importantly, we have the right leader who is ready to step into the role. As I’ve said, there’s no one on this planet I trust more than John Ternus to lead Apple into the future. “John is an excellent engineer, a deep thinker, a great personality, and a natural leader,” Cook continued. “I know he will take us even further to provide the best products and services to our users. I’m so proud to call him a colleague and a friend, and I’m honored to have him at Apple.” I’m even more proud to call you CEO. Over the coming months, John and I will work closely together to ensure this transition is completely smooth.” Mr. Cook is set to become executive chairman on September 1, and Mr. Ternas jumped at the call. “It means a lot to me to have Tim’s trust,” he said. “You know, one of the hallmarks of Tim’s tenure was a deep sense of thoughtfulness, prudence and discipline when it came to making financial decisions for the company. Please know that Kevin (Parekh) and I intend to continue that.” Ternus added, “This is a particularly exciting moment for Apple as I transition into the (CEO) role in September. As Tim said, we have a great roadmap ahead of us. I’m not going to get into the specifics of that roadmap, but suffice to say this is the most exciting time in my 25-year career at Apple building products and services.” Quarterly Commentary Second quarter product sales increased 16.7% year-over-year to $80.21 billion, exceeding expectations of $78.21 billion. As we saw last time, the strong performance in hardware can be attributed to strong demand for the iPhone, with sales increasing nearly 22% to $56.99 billion, which exceeded public expectations and was the company’s highest March quarter ever. During the call, Cook said the iPhone 17 lineup is the most popular in the company’s history. We’ve seen some estimates from data providers that make the iPhone results appear to be incorrect. But based on FactSet estimates, it was a huge success. More importantly, no matter what you call it, the growth in iPhone sales is impressive, especially given that Cook said on the conference call that Apple’s flagship product sales were suffering from supply constraints. This iPhone growth came on top of year-over-year sales growth in all of its other product categories, from Macs to iPads to wearables to the Home & Accessories business. Sales for all product lines exceeded expectations. The 5.7% increase in Mac sales included the debut of the MacBook Neo in the March quarter. Neo is a low-cost laptop aimed at taking market share from Windows-based laptops and Chromebooks. Product gross margin performance was also a bright spot, increasing 276 basis points (2.76 percentage points) to 38.7%. This was higher than the expected 36.6%. Services revenue hit a record high, with growth accelerating slightly from approximately 14% in the first quarter to just over 16% in the second quarter. The result was $600 million more than expected. Services revenue includes sales from Apple TV, advertising, cloud services, music and payment services, and the App Store. Services gross margin expanded 93 basis points (nearly 1 percentage point) to 76.7%, beating expectations of 76.3%. Outlook Apple’s revenue outlook for the current quarter (the company’s fiscal third quarter of 2026) exceeded consensus estimates. Sales in the June quarter are expected to rise 14% to 17% year-on-year, a much stronger forecast than expectations for growth of about 9%. To name a few numbers in this regard, Apple’s growth guide suggests revenue in the range of $107.2 billion to $110.02 billion. For comparison, the LSEG consensus is $102.93 billion. Services revenue for the June quarter is expected to grow at a similar rate to that announced by Apple, excluding the benefit of currency fluctuations, which accounted for just over 2.5 percent of growth in the March quarter. Companywide gross profit margin for the June quarter is expected to be 47.5%-48.5%, higher than the interim estimate of 47.6%, according to FactSet. (Jim Cramer’s Charitable Trust is long AAPL. See here for a complete list of stocks.) As a subscriber to Jim Cramer’s CNBC Investment Club, you will receive trade alerts before Jim makes a trade. After Jim sends a trade alert, he waits 45 minutes before buying or selling stocks in his charitable trust’s portfolio. If Jim talks about a stock on CNBC TV, he will issue a trade alert and then wait 72 hours before executing the trade. The above investment club information is subject to our Terms of Use and Privacy Policy, along with our disclaimer. No fiduciary duties or obligations exist or arise from your receipt of information provided in connection with the Investment Club. No specific results or benefits are guaranteed.
