Apple AAPL shares have appreciated 18.1% over the trailing six-month period, outperforming the Zacks Computer and Technology sector’s return of 10.2%. The outperformance can be attributed to strong iPhone 17 sales that jumped 23.3% year over year to $85.27 billion and accounted for 59.3% of first-quarter fiscal 2026 net sales. Strong iPhone 17 sales drove China revenues in the first quarter of fiscal 2026. Services, which accounted for 20.9% of quarterly revenues, grew 14% year over year to $30.01 billion in line with management guidance. So, what should investors do with Apple stock now? Let’s find out.
Apple’s iPhone Benefits From Expanding Features
The company has been adding features to the iPhone line-up, including Apple Intelligence tools as well as Apple Creator Studio, which is driving iPhone sales. Since the launch of Apple Intelligence, the company introduced dozens of features, including writing tools and cleanup and made it available in 15 languages. Visual intelligence is helping users learn and do more with their content on iPhone. It is helping users search faster, take action and answer questions across their apps.
Apple’s multi-year collaboration deal with Alphabet GOOGL is now expected to be a key catalyst in boosting Apple Intelligence features. Under the agreement, the next generation of Apple’s foundation models will be based on Google’s Gemini models and cloud technology. Apple Intelligence features, including a more personalized Siri, will now be powered by Google models. However, Apple Intelligence will continue to run on Apple devices and Private Cloud Compute.
Apple has been facing several issues with its AI initiatives, including timing and execution. The iPhone-maker has been playing catch-up with the likes of Alphabet, Microsoft MSFT and Amazon AMZN in the AI space. Apple Intelligence features are either being delayed or launched quite late in growth regions like Greater China. Execution challenges have been an issue as Apple’s focus on on-device processing and privacy has been a constraint for its AI models as compared with cloud-based models from Alphabet and Microsoft, which have the ability to scale faster and gain knowledge more aggressively.
Apple’s collaboration with Alphabet is expected to solve some of its timeliness and execution issues. Apple Intelligence is expected to play a significant role in driving the company’s Services business. Apple has witnessed strong shipments of its devices in markets where Apple Intelligence has been available. The company believes growing adoption of Apple Intelligence among developers will drive strong demand for their apps. The addition of Google models, including Gemini, is expected further boost the adoption of Apple models among app developers.
Apple’s Prospects to Ride on Strong Services Business
Services, which comprises Apple’s advertising business, AppleCare, Cloud Services, Digital content (Arcade, Music, Fitness+, TV, News+) and Payment services (Apple Card & Apple Pay), is riding on an expanding base of installed devices (over 2.5 billion). In the first quarter of fiscal 2026, Apple hit all-time revenue records on advertising, music, payment services and cloud services, where it saw double-digit growth on paid subscribers.
Apple’s Services segment benefits from an expanding games portfolio and the growing popularity of Apple TV+. Apple’s strategy of adding new games on a continuous basis is driving its user base. The Services have been benefiting from frequent updates, thereby driving the user base. New features helped Apple Pay make a significant impact by eliminating well over $1 billion in fraud, while generating more than $100 billion in incremental merchant sales globally. Apple Pay is now available in 89 markets, while Apple Fitness+ expanded to 28 additional countries and regions. Apple Arcade expanded its catalog of highly rated games with more than 50 new titles.
Apple’s Fiscal 2026 Estimate Revision Shows Positive Trend
The Zacks Consensus Estimate for Apple’s fiscal 2026 earnings has increased by 3.2% to $8.41 per share over the past 30 days, indicating 12.7% growth from the figure reported in fiscal 2025.
Apple Inc. Price and Consensus
Apple Inc. price-consensus-chart | Apple Inc. Quote
The Zacks Consensus Estimate for Apple’s fiscal 2026 revenues is pegged at $461.12 billion, indicating 10.8% growth over the figure reported in fiscal 2025.
Apple Stock Performance and Valuation
Apple shares have outperformed Microsoft and Amazon but underperformed GOOGL shares in the past six months. Shares of Alphabet jumped 53.9%, while Amazon and Microsoft dropped 9.1% and 22.3%, respectively.
Apple Stock’s Six-Month Performance
Image Source: Zacks Investment Research
Apple’s stock is trading at a premium, as the Value Score of D suggests.
AAPL is trading at a forward 12-month price/sales (P/S) of 8.56X compared with the sector’s 6.51X, Microsoft’s 8.43X, and Amazon’s 2.69X. However, Alphabet’s P/S multiple of 8.95 is higher than Apple.
Apple Stock’s Valuation
Image Source: Zacks Investment Research
Conclusion
Apple’s prospects are expected to benefit from its strong iPhone and Services business. Apple’s expanding AI footprint, thanks to the GOOGL collaboration, bodes well for growth prospects. These factors justify a premium valuation despite stiff competition in the smartphone and AI domains.
AAPL currently has a Zacks Rank #2 (Buy), suggesting that it may be the right time to start accumulating the stock. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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Amazon.com, Inc. (AMZN) : Free Stock Analysis Report
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This article originally published on Zacks Investment Research (zacks.com).
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
