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As Big Tech continues its spending and builds out its infrastructure for the coming AI wave, Apple continues its own shift.
Sales of the iPhone, which makes up about half of the company's revenue, have fallen, and Thursday's quarterly report showed another 10% drop in sales.
But the company's quarter was well received, thanks in part to its services business, which has emerged as a bright spot and the source of continued profit margin growth for the world's second-largest company.
The services segment, which includes the App Store, Apple Pay, Apple TV+ and Apple Music, saw 14% revenue growth in the company's second quarter.
And as CFO Luca Maestri noted during the earnings call Thursday evening, these gains, along with some cost savings, have played a major role in pushing the company's gross margins to a 12-year high of 46.6%, up from 45. 9% in the previous quarter.
As our Chart of the Week shows, the company, to use analyst language, has been trying to boost its margin profile for years.
Efficiency emerged as a fresh new theme for technology following last year's shift towards profitability and leanness due to the post-pandemic phase of talent grabbing.
And now, at least in part of the sector, growth is back as AI fuels an investment boom.
During Apple's earnings call, CEO Tim Cook pointed out all the AI announcements and told investors virtually no details about plans or expenses.
However, the general idea is that they do indeed spend less than their Magnificent peers.
Which investors should appreciate, as Evercore analysts wrote Thursday, as “Apple executes AI in a more capital-efficient manner than other technology companies.” Spend less to earn more, hopefully, unlike Meta, for example.
And perhaps this is an essential part of the company's AI strategy, which is nothing if not in line with the company's long-standing philosophy of not rushing into a product category. Instead, Apple has preferred to be a thoughtful late adopter that doesn't give in to trends.
Computers, MP3 players, phones, tablets, headphones, VR headsets. Most were successes for Apple; all were “late” compared to the competition.
Unlike the brute force of investment that peers are putting into AI, Apple's services sector relies on the company's shiny brand and walled ecosystem.
We expect Apple's upcoming AI strategy to capitalize on this approach, continue to drive the company's margin growth that has defined the last few years of business, and differentiate the company from its peers.
Ethan Wolff-Mann is a Senior Editor at Yahoo Finance and provides newsletters. Follow him on Twitter @ewolffmann.
