Apple’s Q1 FY2025 Earnings: Record-Breaking Results But China Concerns Remain

When we think of highly profitable companies, one of the first ones that come to mind is Apple Inc (NASDAQ: AAPL) and that’s down to its iPhone. 

The tech giant just delivered another blockbuster earnings report, shattering revenue and profit records yet again. Apple continues to fire on all cylinders – iPhone sales are holding up, services revenue is booming, and Apple Intelligence is gaining traction. 

But not everything is perfect. China sales dropped 11%, and Apple is still facing stiff competition from local smartphone brands like Huawei. The company is also navigating a fiercely competitive landscape in artificial intelligence (AI) and premium hardware markets. 

So, is Apple still a strong buy, or are investors in for some turbulence?

Apple’s Record Quarter

For the first quarter of fiscal 2025 (Q1 FY2025), Apple set a new all-time record for revenue, reaching US$124.3 billion, marking a 4% increase from the previous year. 

The company also achieved a record earnings per share (EPS) number of US$2.40, a 10% rise year-on-year. Robust sales across major markets including the Americas, Europe, Japan, and the rest of Asia-Pacific, drove this strong performance, with the company setting new revenue records in multiple regions. 

Despite headwinds in China, Apple’s overall business remains strong, with services and Mac sales leading the way.

Apple Intelligence Driving iPhone Demand

Apple’s installed base reached 2.35 billion active devices, with strong upgrade cycles for iPhones. Apple Intelligence is proving to be a major driver of iPhone demand. 

In regions where Apple Intelligence is available, iPhone 16 sales performed significantly better compared to markets without the feature. 

AI-powered tools such as Image Playground, Genmoji, and AI-driven photo editing are resonating with users, adding extra value to Apple’s ecosystem. The upcoming expansion of Apple Intelligence to more languages in April is expected to further boost demand.

Meanwhile, Apple’s services business continues to grow at a rapid pace. The segment brought in US$26.3 billion in revenue, reflecting a 14% increase year-on-year. The company’s subscription-based services, including Apple TV+, iCloud, and Fitness+, are gaining traction, with over one billion paid subscriptions now active. 

The services segment now contributes over 20% of total revenue, providing a recurring revenue stream. This segment will be a key pillar of the company’s long-term growth strategy. 

For Macs and iPads, they both saw a strong sales rebound, with Mac revenue rising 16% year-on-year to US$9 billion and iPad revenue increasing 15% year-on-year to US$8.1 billion. The introduction of AI-powered Mac models, as well as refreshed iPad offerings, has helped reignite demand. 

Additionally, over half of the iPads sold in the quarter went to first-time buyers, indicating Apple’s success in expanding its user base.

China Sales Decline but Emerging Markets Offer Growth

China remains a weak spot for Apple, with revenue in the region declining 11% year-on-year. Increased competition from local brands such as Huawei and Xiaomi, along with macroeconomic challenges, have contributed to this decline. 

The decline signals challenges in maintaining its dominant position in China. Apple Intelligence is not available in China yet, which could be hurting demand. There’s also the potential for weakened consumer demand if China’s macroeconomic struggles continue, which could certainly impact Apple’s sales there. 

However, Apple continues to expand its presence in other emerging markets, with record-breaking sales in India, Latin America, and the Middle East. The company remains optimistic that government stimulus measures in China could provide some relief in the coming quarters.

What Should Investors Lookout for?

One key risk to watch out for is the strong US dollar. Apple expects a 2.5% revenue hit from currency exchange rates next quarter. If the dollar stays strong, it could eat into Apple’s profits.

With its services segment growing rapidly, Apple continues to face antitrust scrutiny worldwide. If regulators force Apple to change its App Store fees or business model, it could impact its 75% gross margin services business. 

Apple is doubling down on AI with Apple Intelligence, but rivals like OpenAI, Google, and Microsoft are aggressively pushing their own AI ecosystems. Maintaining a technological edge in AI-powered devices and services will be crucial.

Should You Buy Apple Stock Now?

Apple’s Q1 FY2025 earnings reinforce its resilient business model and continued dominance in consumer technology. The company’s strong services revenue, rapid adoption of Apple Intelligence, and ongoing hardware innovation remain key growth drivers. 

However, declining sales in China, regulatory scrutiny, and intensifying competition in AI present challenges that warrant close attention.

Looking ahead, Apple’s expansion of Apple Intelligence to new markets in April, potential breakthrough product innovations, and steady momentum in its high-margin services business are expected to sustain growth. 

While risks remain, Apple’s ability to redefine technology and strengthen its ecosystem keeps it among the world’s most influential and valuable companies. Additionally, its deeply loyal customer base and massive US$141 billion cash reserve provide the financial strength to fuel future growth and innovation.