Goldman Sachs and Citigroup on Apple’s earnings report: Results exceeded expectations, and 2.5 billion active users are expected to support a new iPhone cycle.

Goldman Sachs and Citigroup on Apple’s earnings report: Results exceeded expectations, and 2.5 billion active users are expected to support a new iPhone cycle.

Apple Inc.’s first fiscal quarter results for fiscal year 2026 exceeded expectations across the board, with strong iPhone sales and record profit margins driving the stock up about 2% after hours. Wall Street investment banks generally have a positive outlook on the growth potential of service revenues driven by Apple’s installed device base surpassing 2.5 billion, as well as the stimulus effect of new products like a foldable iPhone on upgrade cycles.

Apple reported quarterly revenue of $143.8 billion on January 29, up 16% year-over-year, surpassing the company's previous guidance of 10-12% growth and beating the market’s expectation of $138.4 billion. Earnings per share were $2.84, above the market expectation of $2.67. iPhone revenue reached $85.3 billion, up 23% year-over-year and far beating market expectations of $78.2 billion.

According to Chase Wind Trading Desk, Goldman Sachs maintained its Buy rating with a target price of $320 after the earnings release. Goldman analyst Michael Ng's team noted that the company’s gross margin reached a historical high of 48.2%, with both product and service business gross margins setting records. Citi also maintained a Buy rating with a target price of $315. Analyst Atif Malik’s team pointed out that the active installed device base surpassing 2.5 billion provides support for future growth.

The better-than-expected results have boosted market confidence in Apple’s AI strategy and product cycle. Investors will focus on how Apple manages cost pressures from tariffs, as well as the spring launch of personalized AI Siri and the progress of its cooperation with Google Gemini.

Strong iPhone Performance, Impressive Growth in China

Goldman Sachs’ report shows that Apple iPhone revenue reached $8.53 billion, up 23% year-over-year, far exceeding Goldman Sachs’ expected $7.8 billion and the consensus estimate of $7.82 billion. Goldman had previously anticipated a 13% year-over-year increase for iPhone, but actual performance was significantly better than expected. The Greater China region saw revenue grow 38% year-over-year, setting a record high for iPhone upgrade users in Mainland China, while switcher users (those switching from other brands to iPhone) achieved double-digit growth.

For other product lines, Goldman’s report shows Mac revenue at $840 million, below Goldman’s $910 million forecast and the market’s $930 million expectation, down 7% year-over-year. iPad revenue was $860 million, beating Goldman and market expectations of $810 million, up 6% year-over-year. Wearables, home and accessories revenue reached $1.15 billion, below Goldman’s target of $1.21 billion and the market’s $1.22 billion, down 2% year-over-year.

Goldman analysts stated in the report that the company guided for "double-digit growth" in iPhone sales, and actual performance greatly exceeded this forecast. Investor focus will center on how Apple manages higher component costs, demand prospects for iPhones in the global and Chinese markets, product refresh cycles, and the development of Apple Intelligence.

Record Gross Margins Highlight

Goldman’s report shows that Apple set multiple gross margin records in the first fiscal quarter. Overall gross margin reached 48.2%, surpassing Goldman’s forecast of 47.7% and the consensus of 47.4%. Product gross margin was 40.7%, above Goldman’s forecast of 39.9% and the market’s 39.4%; service gross margin reached 76.5%, topping Goldman’s expectation of 75.5% and the consensus of 75.6%. This is the first time Apple’s product and service gross margins both set records simultaneously in history.

Goldman noted that gross profit of $6.92 billion exceeded the expected $6.55 billion and the market’s $6.56 billion. Operating expenses were $1.84 billion, in line with company guidance, but up 19% year-over-year, reflecting increased R&D investment.

According to Citi’s report, the company’s guidance includes $1.4 billion in tariff-related costs, with gross margin guidance in the 47-48% range. How to manage commodity cost inflation and its impact on profit margins will be a key market focus.

2.5 Billion User Base Supports Future Growth

The active installed device base is a key factor for investment banks’ optimism on Apple’s long-term prospects. According to Goldman’s report, the active installed base for all devices exceeded 2.5 billion, outperforming Goldman’s expectation of 2.45 billion.

Goldman believes that the record-high installed base should support continued momentum in the iPhone product cycle, such as new products like a foldable iPhone. The enormous user base provides a solid foundation for service revenue growth and new product rollouts.

According to Goldman’s investment thesis, Apple’s brand loyalty leads to a growing installed base, providing visibility into revenue growth, reducing customer churn, lowering customer acquisition costs for new products and services, and encouraging repeat purchases. The majority of gross profit growth over the next five years should be driven by the services business.

Citi listed seven key points from the earnings call in its report: strategies for dealing with higher component costs; global, especially Chinese, iPhone demand prospects and replacement cycles; service business growth drivers; AI development including major Siri upgrades and Gemini collaboration; tariff situation and impacts; new product launch plans for 2026; and CEO succession planning.

Investment Banks Maintain Positive Ratings, Focus on AI Progress

Goldman maintains its Buy rating, with a 12-month target price of $320. According to Goldman’s report, the target price is based on the company’s NTM+1Y EPS with a P/E ratio of 34x. Goldman believes Apple stock should rise on iPhone-driven revenue beats and record profit margins.

Citi maintains its Buy rating, with a target price of $315. According to Citi’s report, the target price is based on the expected 2027 EPS at 33x P/E, about a 20% premium over Apple’s historical average. Citi believes the premium is justified, reflecting gross margin expansion excluding tariff impacts, rising share of service sales, gradual adoption of Apple Intelligence, and a strong balance sheet.

The AI strategy has become the main focus for institutions. According to Goldman’s report, collaboration with Google Gemini and the expected launch of a more personalized AI Siri this spring will be the key points of interest. Citi’s report notes that Apple’s AI development progress includes a major upcoming Siri revamp, Gemini collaboration, and leadership changes.

In terms of risk, Citi’s report highlights key risks including macroeconomic downturns or changes in consumer demand that could lead to above-expected slowdowns or contraction in the mobile market, uncertainty in US-China relations possibly affecting the supply chain, regulatory risks such as the European Digital Markets Act, and increased caution among institutional investors as Apple’s shares hold significant index weighting.

 

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