Apple on Thursday evening reported a strong holiday quarter, with iPhone sales up 23%. Strong earnings guidance for the current March quarter suggests this strong device cycle will continue. Apple’s revenue for the first quarter of its fiscal year 2026, which ended Dec. 27, rose 16% year over year to $143.76 billion, beating the LSEG consensus estimate of $138.48 billion. Earnings per share were $2.84, up 18% year-over-year and beating consensus estimates of $2.67, according to LSEG. AAPL 1Y Mountain Apple 1 Year Despite the strong performance and bright outlook, Apple shares rose slightly in after-hours trading. The smartphone maker’s stock price has been weak lately, posting losses for the past eight consecutive weeks. But as of pre-print Thursday’s close, Apple stock is up 4% so far this week and appears poised to finally end its losing streak. In conclusion, Apple delivered strong results in the December quarter, delivering the best performance in our key product lines of focus. iPhone’s strong performance shows that a strong product cycle is underway while high-margin services revenue streams remain strong. Notably, although sales were strong in all regions, the biggest upside surprise occurred in Greater China, where sales increased 38% year-over-year and exceeded expectations by approximately $4.7 billion. This was the best iPhone quarter in Great China’s history thanks to enthusiasm for the iPhone 17 lineup, record upgrades, and double-digit growth in switchers. Gross profit margin also expanded steadily year over year, reaching a level that exceeded Street expectations. Rising memory prices could change the situation within a few quarters. Memory was the most popular question during the Q&A section of Thursday night’s earnings call, and CEO Tim Cook explained that memory had a modest impact on fiscal first quarter gross profit. The company expects a slightly larger impact in the second quarter, but Cook said the 48% to 49% outlook above is understandable. While this is a relief for now, the market will continue to worry about memory hurting gross margins until prices come down. Why We Own It Apple’s primary hardware and services business offers a deep competitive moat and rich bundling opportunities. Management’s net cash neutral strategy provides confidence that free cash flow will continue to fund dividends and share repurchases. Competitors: Samsung, Xiaomi, OPPO, Dell, HP Inc. Recent Purchases: April 8, 2014 Started: December 2, 2013 Another thing about Apple compared to its mega-cap technology peers is that its free cash flow continues to grow significantly. Free cash flow for the quarter was $51.5 billion, compared to Meta Platform’s cash flow of $14 billion and Microsoft’s cash flow of just $5.8 billion. When it comes to artificial intelligence, Apple is playing a different game. Rather than trying to build and train its own large-scale language models, the company is partnering with Alphabet’s Google to develop the next generation of Apple Foundation models that will power the future capabilities of Apple Intelligence, which the company calls its AI product. This maintained cash flow and allowed Apple to repurchase $24.7 billion worth of stock during the quarter. One more thing about Google: We didn’t know the terms of the AI deal Thursday evening, but Cook said the team chose Google because they thought it had the most capable base. “We believe that collaboration can unlock many experiences and innovate in important ways,” he added. With another quarter to go, we feel a little better about Apple’s current ability to manage memory costs, the new iPhones are clearly resonating around the world, and China is not an issue for the time being. If Apple is achieving these results without major AI enhancements, we’re excited to see what the partnership with Alphabet can do for the company. We have to keep an open mind based on memory prices, but Apple seems to be handling this issue well at the moment. While we maintain a “2 Hold Equivalent” rating on Apple’s stock, we think the signs of stabilization after eight weeks of losses are a rebound worth nibbling on for investors who feel they can use more of Apple in their portfolios. We are comfortable with our approximately 4% weighting in the Jim Cramer Charitable Trust, which is the portfolio we use in the CNBC Investment Club. We also reiterate our target price of $300. Quarterly Commentary First quarter product sales increased 16% year-over-year to $113.74 billion, exceeding expectations of $107.94 billion. The biggest increase was in the most important place: iPhone. Smartphone sales rose 23% year over year to $85.27 billion, exceeding expectations by $7 billion. Across other devices (both Macs and wearables), Home & Accessories sales were down year-over-year, but the market was expected to see some growth. iPad sales increased more than expected. Apple’s installed base currently exceeds 2.5 billion active devices, creating many opportunities for both upgrades and service monetization in the future. Product gross margin increased 140 basis points year over year to 40.7%, exceeding expectations of 40%. Services revenue growth slowed slightly from 15% in the company’s fourth quarter of fiscal 2025 to 13.9% in the first quarter of fiscal 2025, with total revenue of $30.01 billion in line with street expectations. The company had previously been aiming for growth of about 13.5%, which was slightly better than internal expectations. Services revenue includes revenue streams such as Apple TV, advertising, cloud services, music and payment services, and the App Store. Services gross margin increased 150 basis points year over year to 76.5%, exceeding expectations of 75.8%. Outlook Revenue guidance for the current March quarter (the company’s second quarter of 2026) exceeded consensus estimates. Sales in the March quarter are expected to rise 13% to 16% year-over-year, compared with expectations of about 10%, a stronger forecast. To put some numbers into perspective, Apple is aiming for revenue in the range of $107.76 billion to $110.62 billion. For comparison, the FactSet consensus is $104.93 billion. The company said in a conference call that it expects double-digit revenue growth even as it overcomes supply constraints in advanced node capacity. Services revenue is expected to grow at a similar year-over-year rate to what Apple just reported, think about 14%. This would imply revenue of $30.375 billion, slightly above the FactSet consensus estimate of $30.26 billion. Companywide gross profit margin for the March quarter is expected to be between 48% and 49%, beating FactSet’s estimate of 47.3%. Operating expenses are expected to be between $18.4 billion and $18.7 billion, well above the FactSet consensus of $17.5 billion. Part of Apple’s increase in spending is due to investment in research and development (R&D). (Jim Cramer’s charitable trusts are long AAPL, META, MSFT, GOOGL. See here for a complete list of stocks.) As a subscriber to Jim Cramer’s CNBC Investment Club, you will receive trade alerts before Jim makes a trade. After Jim sends a trade alert, he waits 45 minutes before buying or selling stocks in his charitable trust’s portfolio. 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