Apple Inc. (AAPL.US), the American consumer electronics giant, released its fiscal fourth-quarter 2026 earnings report for the period ended September 26 on Tuesday morning Beijing time, followed shortly by an earnings call — the first such call since John Ternus took over as Apple's CEO.
Wall Street powerhouse Goldman Sachs quickly issued a bullish research note on Apple following the results, with its analyst team concluding that the performance of iPhone, Mac, and resilient gross margins should support share price gains. The firm maintained its "Buy" rating and a 12-month price target of $390.
Based on the closing price of $338.32 that day, Goldman's target implies roughly 15.3% upside over the next ten months, corresponding to a potential market capitalization of approximately $5.67 trillion.
The key takeaway from Apple's report is that after raising prices on high-end products, overall ecosystem sales and demand for Apple's premium product line proved more resilient than Goldman had anticipated. However, in the upcoming Christmas and New Year holiday season, further memory chip price increases and the cloud operating costs of Siri AI will erode the actual profit generated by every dollar of sales.
In fiscal Q4 2026, Apple's revenue grew 12% year-over-year to $114.477 billion, while diluted earnings per share rose 14% to $2.10, both exceeding Goldman's optimistic forecasts. Apple shares were roughly flat when the results first came out, then briefly fell about 4% after the earnings call disclosed a potentially weaker holiday-quarter margin outlook, with losses hovering around 3% during after-hours trading.
Apple's stock has shown remarkable resilience amid the recent global tech selloff, largely because — in contrast to Google parent Alphabet, Amazon, and Facebook parent Meta, which have been aggressively issuing debt to build AI computing infrastructure and whose long-steady free cash flows have swung sharply negative amid the AI infrastructure frenzy — Apple's consistently strong free cash flow has earned it a market premium.
Why has Apple's stock been able to outperform the Nasdaq 100 and the Philadelphia Semiconductor Index amid the global tech rout? From October 23 to October 30, Apple shares fell 0.89%, while the Nasdaq 100 — regarded as the global barometer for AI trading and tech stocks — declined 1.98%, meaning Apple outperformed by about 1.09 percentage points.
The clearest demonstration of Apple's counter-trend gains against the AI trade theme and broad tech stocks came over the two trading days of October 29 and 30: Apple rose a cumulative 0.23%, while the Nasdaq 100 and the Philadelphia Semiconductor Index plunged 4.79% and 8.52%, respectively.
Apple shares had rebounded about 24% from their June low through the pre-earnings period, adding roughly $1 trillion in market value, with the forward 12-month price-to-earnings ratio climbing to about 36 times — the highest level since 2008. What underpins this relative strength is verifiable cash returns: in fiscal 2026, Apple generated $145.097 billion in operating cash flow, and after deducting $9.041 billion in capital expenditures on fixed assets, free cash flow came to approximately $136.056 billion, up 37.8% year-over-year.
As the market grows increasingly concerned about the ever-expanding AI investment scale of cloud computing giants like Meta and Alphabet and the resulting delays in cash recovery, Apple can use its strong existing cash flow to support its valuation and accelerate deployment of cutting-edge AI technology without burning through massive amounts of money. But once investors have already paid a high premium for this certainty, holiday-quarter gross margins coming in below expectations would be enough to trigger a pullback.
The sharp contrast between Apple's strong resilience and the Philadelphia Semiconductor Index — the bellwether for AI computing beta strategies — further demonstrates that Apple's long-standing exceptionally strong cash flow data happens to hit precisely the direction the market is most willing to pay a premium for. While the AI infrastructure buildout sector faces renewed scrutiny over capital expenditures, rising AI financing costs, and ultimate returns, Apple is showing investors a path to commercializing cutting-edge AI technology based on strong cash flow, leveraging its existing devices, user data, and powerful ecosystem distribution capabilities. On top of that, demand for the already-launched $1,999 high-end foldable iPhone is explosive and could bring long-term positive fundamental growth catalysts.
Bob O'Donnell, chief analyst at TECHnalysis Research, told media after the earnings report that early reception for the $1,999 Duo shows strong sales potential, and the more immediate test is whether Apple can resolve screen issues on some devices and ramp up production in time. Citigroup analyst Asiya Merchant takes a longer view of growth opportunities: beyond the replacement cycle driven by more expensive foldable-related new products, service expansion and future Siri monetization could also serve as catalysts. She maintained a "Buy" rating and $365 price target after the earnings report.
Who Drove the Earnings Surprise? Mac Contributed the Biggest Positive Variance as iPhone Confirmed High-End Pricing Resilience
According to Goldman's research note, Apple's fiscal fourth-quarter iPhone revenue was $57.583 billion, up 17% year-over-year and above the FactSet consensus estimate of $56.616 billion. Mac product line revenue was $10.792 billion, up 24% year-over-year and above the market estimate of $9.810 billion.
Measured by Goldman's own quantitative model, Mac and iPhone contributed an additional $2.109 billion and $1.022 billion in revenue respectively, while iPad and wearables, home, and accessories combined fell short by $2.304 billion — yet Apple's total revenue still came in $879 million above Goldman's optimistic forecast.
This explains why Goldman remains bullish on Apple's pricing power but has not yet characterized this quarter's results as a full consumer electronics recovery. In the view of Goldman's analyst team, Apple's current earnings quality hinges primarily on total services revenue. Services revenue hit a record quarterly high of $31.573 billion, up 10% year-over-year and broadly in line with market expectations, but services gross margin reached 76.0%, above the market estimate of 75.2% and above the 75.4% shown by Goldman's quantitative forecast model.
According to Goldman's calculations, the services business accounts for about 27.6% of group revenue but contributes 43.7% of gross profit. Apple's product gross margin was approximately 37.2%, above the market estimate of 36.7% and essentially in line with Goldman's optimistic quantitative model. In Goldman's view, the biggest surprise in services is that it represents only about 28% of revenue yet contributes roughly 44% of group gross profit.
Under the heavy pressure of surging DRAM/NAND memory chip prices, Apple's fiscal fourth-quarter gross margin still looked upbeat — reaching 47.9%. Although at a one-year low, it came in above Goldman's and Wall Street's expectations despite the memory cost headwind, with about 1 percentage point attributable to the favorable impact of Trump administration tariff refunds; EPS also included a tariff refund contribution of approximately $0.05. Excluding this factor, Apple's profitability still beat expectations, though by a more modest margin.
In Goldman's view, every $100 of Apple's services revenue generates $76 in gross profit, above the market expectation of $75.2 and Goldman's forecast of $75.4. Weighted by the revenue share of the two most critical business segments — products and services — group gross margin reached 47.9%, unexpectedly above Goldman's optimistic quantitative model forecast of 47.5%. Operating income was $35.631 billion with an operating margin of 31.1%, both exceeding market expectations of $34.602 billion and 30.5%.
Tariff refunds added about 1 percentage point to group gross margin and about $0.05 to earnings per share. Since Goldman had already factored in the refund beforehand, what is more noteworthy is that Apple's reported diluted EPS for the quarter was $2.10, $0.09 above Goldman's forecast of $2.01 which already accounted for tariff refunds. Excluding the $0.05 benefit from refunds, Apple's diluted EPS for the quarter would be approximately $2.05, still above Goldman's and Wall Street analysts' consensus baseline estimates. Other net income metrics came in above forecasts, and the effective tax rate was below forecasts, also providing a boost to EPS.
By region, Greater China was where Goldman most significantly underestimated: revenue in the region grew 21% year-over-year to $17.539 billion, $872 million above Goldman's forecast. By comparison, Apple's total global revenue beat Goldman's forecast by only $879 million.
Revenue Guidance Rises but Gross Margin Outlook Unexpectedly Falls: Why Did the Earnings Call Change the Stock's Direction?
The most instructive aspect of Goldman's latest research on Apple's results is its pre-guidance judgment for the global holiday shopping season: revenue growth in the low-to-mid single digits, gross margin of 46%–47%, and operating expenses of roughly $20 billion. By contrast, Apple management actually guided: revenue growth of 7%–10%, stronger than the market's roughly 6% expectation; gross margin of only 45%–46%, with the entire range below the market consensus and the midpoint below Goldman analysts' roughly 46.5% forecast, and significantly below the 47.9% gross margin reported in the latest results.
Operating expense guidance was approximately $20.4–$20.8 billion, also above Goldman's forecast. Meanwhile, the higher-margin services business is expected to grow only 8%–9%, below the 10.7% analyst expectation shown by LSEG Data & Analytics.
However, the two specific reasons should not be conflated: third-party licensing and foreign exchange are mainly slowing services revenue growth, while the persistent rise in memory chip prices is the primary reason for group gross margin pressure, with Siri AI expansion adding another cost. The market modestly downgraded its judgment on holiday-quarter profitability after the earnings call, while Apple management still expects that quarter's revenue to set a company record.
Goldman analysts said the earnings call also revealed a key detail about Apple's AI business model. On-device inference already has concrete value: Gap uses Mac minis in hundreds of stores to run loss-prevention models locally, eliminating per-call cloud inference fees. At the same time, Siri AI tasks requiring server processing incur cloud costs, which Apple includes in the cost of services revenue. Starting in the December quarter, deferred revenue allocated to bundled services from device sales and recognized over the device's useful life will also reflect the addition of Siri AI as a high-performance AI system.
Management plans to set usage limits on some server-side features and offer paid upgrades in the future, but did not disclose standalone AI revenue. There is also a timing gap on the hardware side: from June to September, Apple's manufacturing purchase commitments increased by $33 billion, which helps secure supply but does not mean it has locked in $33 billion of low-priced memory. Old inventory can temporarily buffer price increases, but as higher-priced new materials enter production, whether price increases and the mix toward high-end models can hold gross margins is the test for the next quarter.
Why Does Goldman Still Give a $390 Target? Its Core Bet Rests on Over 2.5 Billion Active Devices and Over 1.5 Billion Paid Subscriptions
Goldman's core bet is that more than 2.5 billion active devices and over 1.5 billion paid subscriptions enable Apple to sell more services and devices to its existing user base at a low customer acquisition cost, and the strong profits from these sales will more than cover the costs of memory chip price increases and purchased cloud computing capacity. Goldman's analyst team added in the note that the massive device base and brand loyalty help lower acquisition costs, drive repeat purchases and service consumption, and Goldman bets that over the next five years, services will contribute the majority of the group's incremental gross profit.
Goldman judges that most of the group's gross profit growth over the next five years will come from services, and values the stock at about 40 times forward one-year-rolling expected EPS. Its model lists fiscal 2027 and 2028 EPS of $9.16 and $9.76, respectively. This target is quite sensitive to the valuation multiple: holding earnings at the implied $9.75 per share for the $390 target, if the market only assigns a 35x forward P/E, the valuation would be about $341 — nearly back to the closing price on earnings day.
Lengthening replacement cycles, supply disruptions in key components, services competition and platform regulation, as well as insufficient capital returns from buybacks or M&A, are all risks Goldman lists. The most immediate is whether services profit growth can support a 40x valuation.
Moreover, in Goldman analysts' view, as global investors continue to scrutinize returns on trillion-dollar-scale AI infrastructure investment, Apple — advancing AI commercialization through its existing devices, operating system gateway, and ecosystem distribution capabilities while still generating ample cash flow — is more likely to command a significantly larger valuation premium over other tech giants in the long run. The most typical manifestation is that "from October 29 to 30, Apple rose a cumulative 0.23%, while the Philadelphia Semiconductor Index plunged 8.52% over the same period."
In the wake of the earnings release, Wall Street institutions' major disagreements over Apple's stock outlook essentially center on whether price increases, product mix, and services monetization can offset a cost combination that may keep growing in the near term. Citigroup maintained its optimistic "Buy" rating with a price target of $365, implying about 7.9% upside and a market capitalization of roughly $5.30 trillion. Its senior analyst Asiya Merchant emphasized that EPS still beat expectations after excluding tariff refunds, as well as opportunities from new products, services expansion, and future Siri monetization.
UBS Group maintained its cautious "Neutral" rating with a price target of $296, implying 12.5% downside and a market capitalization of roughly $4.30 trillion. UBS analyst David Vogt acknowledged the strong quarterly performance of iPhone and Mac but believes component price increases, growth pressure on search and the App Store, and the temporary nature of tariff refunds limit valuation upside.
Comments