The company’s September quarter revenue hit $102.5 billion, an 8 percent increase year over year, driven by record iPhone and Services sales. iPhone revenue grew 4 percent to $209.6 billion for the year, while Services jumped 14 percent to $109.2 billion. The number that really matters—gross margin—reached 47 percent, which is close to a record high.
The one thing that isn’t actually making Apple any money—at least, not right now—is its artificial intelligence push. But if you listened to Apple’s earnings call, you’d think the company’s future depends on its version of AI, or what it calls Apple Intelligence. In many ways it does, but there’s a difference between the hype and the real story here.
Tim Cook couldn’t stop talking about how the iPhone 17 Pro and its “A19 Pro” chip were built for Apple Intelligence, or how the new Macs are “supercharging AI workflows,” with fancy technology like “neural accelerators.” Even the Apple Watch now uses machine learning to detect and send hypertension alerts. According to Cook, AI will make every Apple product “more personal, capable, and effortless.”
That might be true, but Siri still can’t do most of the things the company promised a year and a half ago. Apple’s competitors are moving much faster and more aggressively–spending billions on AI infrastructure and models. The story for Apple isn’t the technology the company says it’s building. The story is the business it’s already built.
That’s never been more clear than yesterday when, for the first time, Apple Services revenue passed $100 billion for the full year. The company wants to shift the narrative from Services to AI, but it’s still the Services business that quietly prints money.
About three-quarters of Apple’s $416 billion in total revenue came from hardware—the iPhone, Mac, iPad, and everything else. The rest came from Services: things like iCloud storage, Apple Music, the App Store, AppleCare, and Apple TV.
Well, let’s be honest—as much as Apple wants to talk about Apple TV winning Emmy awards, its Services business is mostly App Store commissions and the $20-ish billion that Google pays to be the default search engine in Safari. It turns out that selling Services is a very good business to be in, even if it’s not nearly as interesting or exciting as talking about AI.
The reason should be obvious: Hardware sales come in spikes. People buy iPhones or new laptops every few years when they upgrade. But they pay for app subscriptions and AppleCare every month. It’s predictable. And they’re growing twice as fast as hardware—with margins that are twice as high.
While Services are roughly a quarter of Apple’s revenue, they contribute a far larger share of its profit. That’s what makes this milestone—$100 billion in Services revenue—so important. It’s not just that Apple found a new way to make money off iPhone customers, it’s that it found a way to make money over and over again without needing to sell you something new.
Listening to its earnings call, Apple wants to sound like an AI-first company, but it still behaves like a business dependent on 30 percent commissions. Contrast that with Google, which recently reported its first $100 billion quarter, and announced that it is pouring its search-ad profits into AI infrastructure. Google will spend more than $90 billion on GPUs, data centers, and model training.
Apple, on the other hand, wants to talk about how its products are being built with AI in mind, but that looks a lot different from its competitors. It’s spending a lot of energy talking about AI, but far less money actually building it. Apple Intelligence may be the headline, but Services are still the business.
Don’t get me wrong, that $100 billion it made from Services is very good for business. It’s the thing that has fueled Apple’s growth so far, and will continue to be its most important business for the foreseeable future. The only problem is whether its business will be able to catch up with the hype.
The opinions expressed here by Inc.com columnists are their own, not those of Inc.com.
Jason Aten
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