Apple Earnings: Good Profits Offset Headwinds to iPhone and China Sales; Maintaining $160 Valuation

We maintain our $160 fair value estimate for shares of wide-moat Apple as we lower our short-term revenue forecast but raise our expectations for profitability. Apple’s December quarter iPhone revenue and gross margin exceeded our expectations. Still, we believe the iPhone will see a softer adoption cycle this year and lower our fiscal 2024 forecast for iPhone revenue to a modest decline. Apple is also facing revenue headwinds in China. In the short term, we see demand headwinds for Apple relating to elongating personal device replacement cycles and more aggressive domestic alternatives in China. In the long term, we maintain our view that Apple can drive growth from its unique combination of hardware, software, and services that also elicits steep customer switching costs and underpins our wide moat rating. Apple shares went about 3% lower following results, likely due to weaker China results and lower iPhone expectations, but we continue to see the stock as overvalued.