Apple’s Record Quarter Puts iPhone and AI at the Center of a New Cycle

A super‑cycle powered by silicon, services and Siri’s next act

Apple opened 2026 by doing something it has not done for several quarters: posting a set of numbers that were not just solid but emphatically exuberant. Revenue in the December quarter climbed 16 per cent year on year to $143.8bn, the highest in the company’s history. Diluted earnings per share rose even faster, up 19 per cent to a record $2.84, as gross margins edged further into territory that would make a luxury goods group envious.

The headline driver was the iPhone 17 family. Chief executive Tim Cook described demand as “simply staggering”: iPhone revenue jumped 23 per cent to $85.3bn and hit all‑time highs in every geographic segment, from the Americas and Europe to Japan and the rest of Asia Pacific. The company’s installed base swelled to more than 2.5bn active devices, a new record and the foundation for the quarter’s other star: services.

Services revenue reached $30bn, up 14 per cent and itself an all‑time high, underpinned by records in advertising, cloud, music and payment services. Importantly for investors who have fretted about saturation, Apple said both transacting and paid accounts hit new peaks, as weekly App Store users topped 850m and developer earnings since 2008 surpassed $550bn.

Behind the numbers, though, this was not just another iPhone cycle. It was Apple’s first full quarter with “Apple Intelligence” live in the market – its integrated suite of AI features – and the first time Cook has publicly framed the company’s AI roadmap around a deep partnership with Google.

The iPhone 17 moment – and a supply chain straining to keep up

If the first waves of 5G and the iPhone 12 cycle defined the early 2020s, Apple now appears to be in the early innings of a new, more AI‑centric super‑cycle. Cook called the 17 line‑up “the strongest iPhone lineup we’ve ever had, and by far the most popular,” and the data from the quarter backs that confidence.

Apple notched all‑time iPhone revenue records across The US, Greater China, Latin America, Western Europe, the Middle East, Australia and South Asia. India set a December iPhone record, while the iPhone was the top‑selling model in the US, urban China, the UK, Australia and Japan, according to Worldpanel. In the US, customer satisfaction for the 17 family was measured at 99 per cent.

The company also set an all‑time record for upgraders in aggregate, and in key markets such as the US, mainland China, Japan and India. That suggests the cycle is drawing in not just first‑time buyers but large cohorts of older‑device owners, something chief financial officer Kevan Parekh underlined when he said the 17 lineup had “really resonated with multiple cohorts, whether you’re on older devices or newer iPhones.”

Yet the very strength of that demand has created a familiar Apple problem: scarcity. Cook acknowledged that Apple exited December with “very lean channel inventory” and is now in “supply chase mode” for the March quarter. The bottleneck, he said, lies not in memory but in capacity at the most advanced semiconductor nodes where its latest system‑on‑chips are produced, specifically 3 nanometres.

“We are currently constrained and at this point, it’s difficult to predict when supply and demand will balance,” Cook admitted, while stressing that the impact of higher memory prices was “minimal” in Q1 but would become “a bit more of an impact” on Q2 gross margin. Apple expects company‑wide revenue to grow 13–16 per cent year on year in the March quarter, a guidance range that already bakes in constrained iPhone supply.

For investors, that interplay between voracious demand and tight advanced‑node capacity is a double‑edged signal. On the one hand, Apple is plainly gaining share in a smartphone market that is not growing at anything like 23 per cent. On the other, its ability to fully capitalise on that share shift – and to hold the line on its lofty gross margins as memory prices rise “significantly” – will test the company’s vaunted supply‑chain muscle.

China’s resurgence and India’s long runway

Perhaps the most striking regional story in the quarter came from Greater China, a market that only a year or two ago was a source of investor anxiety. Revenue there rose 38 per cent year on year, driven largely by iPhone, which had “the best iPhone quarter in history” in the region.

Traffic in Apple’s Chinese stores grew by strong double digits, the installed base hit an all‑time high in both Greater China and the mainland, and the company recorded all‑time highs for upgraders and double‑digit growth in switchers. In urban China, iPhones were the top three smartphones during the quarter, according to Worldpanel. iPad was the top tablet model, while Counterpoint data showed MacBook Air as the top‑selling laptop and Mac mini as the top desktop model in December.

Cook was equally effusive on India. The company set a quarterly revenue record there, including records for iPhone, Mac and iPad, and an all‑time high in services. Apple sees India as both “the second-largest smartphone market in the world” and the “fourth-largest PC market,” yet says it still has “modest share” – a combination that Cook characterised as a “huge opportunity.”

The demographic underpinnings look favourable: in India, as in other emerging markets, more than half the customers buying iPhone, Mac, iPad or Watch are new to that product. The installed base in India is growing at strong double‑digit rates. To capture more of that opportunity, Apple opened its fifth store in the country in December and is preparing to open another in Mumbai.

The picture across other regions was similarly robust. Apple set all‑time revenue records in the Americas, Europe, Japan and the rest of Asia Pacific, with double‑digit growth in the majority of markets it tracks, including Latin America and South Asia.

Silicon, devices and the quiet strength – and strain – in hardware

Away from the iPhone, the hardware story was nuanced. Mac revenue fell 7 per cent year on year to $8.4bn, a decline Apple had pre‑flagged because of an unusually tough comparison with the prior‑year launches of M4‑based MacBook Pro, Mac mini and iMac. Yet beneath that headline, the installed base hit an all‑time high and nearly half of Mac buyers were new to the product, with customer satisfaction at 97 per cent in the US.

iPad revenue rose 6 per cent to $8.6bn, helped by the M5 iPad Pro and the A16‑powered iPad. As with the Mac, more than half of iPad buyers were first‑time customers, driving the installed base to another record and producing an all‑time high in upgraders. US customer satisfaction for iPad stood at 98 per cent.

Wearables, Home and Accessories – a category that has been a growth engine in recent years – slipped 2 per cent to $11.5bn, a rare blemish in the quarter. Apple blamed constraints on AirPods Pro 3 and said the category “would have grown” absent those supply issues. Even so, the wearables installed base reached a new high, more than half of Apple Watch buyers were new to the product, and customer satisfaction for Watch in the US was reported at 96 per cent.

If those unit dynamics show some friction, particularly in Macs and wearables, Apple’s response lies in its continued investment in its own silicon. Cook called Apple silicon a “game-changer” and “major advantage” across iPhone, iPad and Mac, while Parekh pointed out that deeper internalisation of silicon – and, over time, modems – not only differentiates the products but is already having a “positive” impact on gross margin and giving Apple more control over its roadmap.

At the same time, the company is threading that silicon story directly into its AI narrative. The M5 MacBook Pro is pitched as a leap forward in AI performance, thanks to a next‑generation GPU architecture and faster neural engine, while the M5 iPad Pro and newer iPhones are the devices that can fully tap Apple Intelligence.

Apple Intelligence, Google, and the monetisation question

If the iPhone 17 line was the visible face of this quarter’s success, Apple Intelligence was the subtext. Cook said that “the majority of users on enabled iPhones” are actively using Apple Intelligence features already, from on‑device writing tools and photo cleanup to visual intelligence that can interpret whatever is on screen and live translation that allows real‑time conversations across languages.

He described Apple’s approach as integrating AI “across our platforms” in ways that are “personal, private, integrated…and relevant to what our users do every day,” arguing that this makes Apple’s devices “far and away the best platforms in the world for AI.” Much of that claim rests on the power and efficiency of Apple’s own chips – and on a hybrid architecture that mixes on‑device computation with what it calls “private cloud compute.”

The more surprising element was Apple’s public embrace of Google as a partner in this AI agenda. Cook said Apple had “determined that Google’s AI technology would provide the most capable foundation for Apple Foundation Models” and that the collaboration would power “a more personalized Siri coming this year.” Those models will run both on‑device and in Apple’s private cloud, he insisted, with the company maintaining its “industry‑leading” privacy standards.

The financial contours of that partnership remain opaque. Cook declined to disclose any revenue‑sharing or structural details, and Parekh sidestepped questions about the impact on capital expenditure, noting only that Apple uses a hybrid CapEx model involving both first‑party and third‑party data‑centre capacity, and that last year’s build‑out of its private cloud compute environment was already reflected in its numbers.

Investors pressed on a more fundamental question: how does Apple monetise AI? Here, Cook was circumspect. He framed Apple Intelligence primarily as a way of “creating great value” by enhancing what users already love, which in turn “opens up a range of opportunities across our products and services.” Read another way, Apple appears more focused on AI as a driver of device upgrades, ecosystem stickiness and deeper services engagement than on charging explicitly for AI features today.

For now, the financial signal sits in the OpEx line. Operating expenses rose 19 per cent year on year to $18.4bn, in line with guidance, driven by higher R&D spending. Apple expects OpEx to remain in the $18.4–18.7bn range in the March quarter, again with R&D as the primary engine.

Services: from fraud prevention to Formula One

While AI dominated the strategic narrative, services continued their quiet transformation into a business that would be a sizable large‑cap company in its own right. The $30bn in services revenue Apple booked this quarter was not just a record in absolute terms but broadly distributed across categories and geographies. The company recorded double‑digit services growth in almost every market it tracks and all‑time records in both developed and emerging economies.

Advertising, music, payment services and cloud all set new highs, with paid cloud subscribers growing at double‑digit rates. The App Store posted a December quarter record, even as third‑party data suggest growth there may be slowing. Apple declined to break out detailed App Store trends but highlighted the continued expansion of its advertising inventory within the store, with new search ad slots “providing advertisers more ways to be discovered.”

Apple Music hit all‑time highs in listenership and new subscriber growth. Apple Pay, meanwhile, has become an increasingly central part of the company’s services pitch to banks and merchants: Cook said it eliminated more than $1bn in fraud for partners last year and is now available in more markets than ever.

Video remains the most visible expression of Apple’s services ambitions. Apple TV viewership in December was up 36 per cent from a year ago, buoyed by shows like “Pluribus” and the promise of new projects such as “Cape Fear” from Steven Spielberg and Martin Scorsese. “Ted Lasso” will return for a fourth season this summer. Since launch, Apple TV productions have amassed more than 650 wins and 3,200 nominations, including a recent Best Picture Oscar nomination for the Formula One‑themed film “F1.”

The company is also deepening its sports portfolio. In the US, Apple TV will be “the place to watch” every Formula One session this season – practice, qualifying, sprints and Grand Prix – and Major League Soccer fans will once again be able to watch every regular and postseason game through the service. For Apple, this blend of prestige drama, sport and awards‑driven cachet is designed to make Apple TV both a cultural marker and an anchor in household budgets.

Margins, cash and capital returns: luxury economics, tech volatility

Behind the product and services narratives, Apple’s financial profile looks more like that of a tightly run luxury empire than a cyclical hardware maker. Company‑wide gross margin in the quarter was 48.2 per cent, 100 basis points higher than in the prior quarter and above the top end of Apple’s own guidance. Product gross margin rose a striking 450 basis points sequentially to 40.7 per cent, driven by favourable mix and leverage from the strong iPhone cycle. Services gross margin climbed to 76.5 per cent, up 120 basis points.

Looking ahead, Apple expects gross margin to be 48–49 per cent in the March quarter, similar to December’s level despite seasonal loss of leverage and rising memory costs. Parekh said favourable services mix should offset some of that seasonal drag, but acknowledged that higher memory prices would exert pressure. Apple, he noted, has “a range of options” to mitigate memory inflation – from procurement strategies to potential design changes – but declined to specify whether pricing would become a lever, something the company has historically been reluctant to use outside currency dislocations.

The cash machine remains formidable. Operating cash flow hit an all‑time record of $53.9bn. Apple ended the quarter with $145bn in cash and marketable securities and $91bn in total debt, leaving net cash of $54bn. It returned nearly $32bn to shareholders in the quarter: $3.9bn via dividends and equivalents, and $25bn through open‑market repurchases of 93mn shares. The board declared a dividend of $0.26 per share, payable on February 12 to shareholders of record on February 9.

On capital expenditure, Apple’s commentary was intentionally bland, a contrast with the splashy CapEx announcements of cloud hyperscalers racing to build AI data centres. Parekh emphasised the “hybrid model” Apple uses, combining first‑party and third‑party data‑centre capacity and variable tooling commitments. CapEx, he said, can be “volatile, independent” of volume, making it hard for outsiders to read the AI demand curve directly from the company’s investment run‑rate.

Values, manufacturing and the political economy of AI

In its closing passages, Apple’s script reached for themes that go beyond quarterly numbers: sustainability, domestic manufacturing and the social impact of its products. Cook highlighted projects from bringing clean water to rural areas in Vietnam to 3D‑printing titanium cases for Apple Watch, and trumpeted the company’s American industrial investments.

Last year, Apple pledged to invest $600bn over four years in US advanced manufacturing, silicon engineering and AI. In the year since, it has begun shipping servers for Apple Intelligence from a new facility in Houston, expanded its cover‑glass partnership with Corning in Kentucky, supported Micron’s advanced chip packaging and test facility, and moved towards sourcing 20bn US‑made chips in 2025. Its Apple Manufacturing Academy in Detroit is training workers and suppliers in smart manufacturing and AI techniques, initiatives Cook said are already improving “productivity, efficiency, and quality” in supply chains.

Those initiatives sit alongside programmes such as Apple’s developer academies in Brazil, Indonesia and South Korea, and a growing lattice of environmental and social‑impact projects. To sceptics, such narratives can feel like well‑produced soft power; to long‑term investors, they are signals of how Apple is positioning itself within the regulatory and political climate that will shape AI, data and industrial policy over the next decade.

The balance of promise and pressure

Strip away the marketing gloss, and Apple has entered fiscal 2026 with a set of fundamentals that most peers would envy: double‑digit top‑line growth, expanding margins, a swelling installed base, powerful cash generation and a services business that is both broad and deep. The iPhone 17 cycle and Apple Intelligence rollout have re‑energised demand in core markets like China while opening new horizons in India and other emerging economies.

The pressures are real: advanced‑node supply constraints, rising memory costs, pockets of weakness in Macs and wearables, and the unresolved question of how – or how quickly – Apple will translate AI excitement into incremental, measurable revenue. Its AI partnership with Google is strategically bold but financially opaque; its AI monetisation strategy remains more inferred than explicit.

Yet in a quarter where Apple simultaneously set records in hardware, services, operating cash flow and earnings per share, management’s tone suggested a company that believes it has time, and balance‑sheet strength, on its side. As Cook put it in closing, with characteristic understatement: “I have every confidence that our best work is yet to come.” For investors, the task now is to judge how much of that future is already priced into Apple’s present.