Good morning. It’s Friday, and we’re decoding Apple’s earnings, the Fed’s preferred inflation gauge and SoftBank’s potential investment with OpenAI. First time reading? Join over 190,000 self-directed investors and sign up here.

Record revenue doesn’t tell the whole story

Apple’s latest earnings drew cheers from shareholders. But beneath the surface, iPhone sales are losing momentum, competition is closing in, and innovation isn’t obvious. 

I get it — it’s hard to imagine risks to a company that boasts more than 2.35 billion active devices and over 1 billion subscriptions. 

Here’s how Apple performed in its fiscal first quarter against LSEG estimates: 

• Earnings per share: $2.40, above $2.35 expected

• Revenue: $124.30 billion, above $124.12 billion expected, up 4% year-over-year

• Stock move: +3% after hours 

“Our record revenue and strong operating margins drove EPS to a new all-time record with double-digit growth and allowed us to return over $30 billion to shareholders,” Apple CFO Kevan Parekh said.

“We are also pleased that our installed base of active devices has reached a new all-time high across all products and geographic segments.”

Those blockbuster financials, however, mask vulnerabilities to what has long been a sure-fire growth story.

In the last year, Apple outperformed the S&P 500 only marginally, and its revenue growth has slowed dramatically since 2022.

In the quarter, iPhone sales fell almost 1% compared to the prior year, even though Apple had just debuted its Apple Intelligence AI feature with the iPhone 16 in September.

The company missed on iPhone sales against Wall Street estimates by the biggest margin in two years.

Some users have reported that the AI tool feels unfinished and inconsistent, and the sales slowdown suggests it isn’t a compelling enough addition to meaningfully accelerate the upgrade cycle. 

Critics, too, have called out Apple for lagging behind other Magnificent Seven names in the AI arms race. 

In China specifically, sales declined more than 11% to $18.5 billion, below the $20.9 billion forecast. Goldman Sachs and others have warned that Apple is losing ground to domestic brands like Huawei and Xiaomi.

The latest numbers seem to support that. 

On an inflation-adjusted basis, Apple’s revenue has barely budged 2021, as Geiger Capital pointed out on X:

Now, Apple has long operated with premium pricing and a loyal fanbase. Yet recent trends suggest its upgrade incentives are losing their pull.

Should that pattern hold, it could mark unfamiliar ground for Apple — working harder and innovating more just to keep growth on track.

Competitors have taken notice. Meta CEO Mark Zuckerberg conveyed all of the above in fewer words during a recent Joe Rogan interview:

“It’s like Steve Jobs invented the iPhone, and now they’re just kind of sitting on it 20 years later.”

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Elsewhere:

📊 The Fed’s preferred inflation gauge is due. The personal consumption expenditures index likely won’t do much to alter the cautious view from policymakers. Economists expect the Core PCE measure to come in at 2.8% for December, the same as the month prior. Even with a hotter inflation print, some analysts think a March rate cut is still on the table. (Yahoo Finance)

👀 SoftBank could invest as much as $25 billion in OpenAI. This would deepen the relationship between the two companies, as they’ve already planned a significant AI initiative together with Project Stargate. The deal would make SoftBank the biggest investor in the company, outpacing Microsoft’s $14 billion investment. (WSJ)

📉 The US economy grew slower than expected in Q4. The latest official estimate showed GDP hit 2.3% to end 2024, below the 2.6% growth expected by economists. That’s also below the 3.1% seen in the third quarter. Most of those gains stemmed from increases in consumer spending and government spending. (CNBC)

Rapid-fire: 

• The Washington DC collision between an airplane and government helicopter has left no survivors (CNBC)

• Trump announced 25% tariffs on Canada and Mexico are coming Saturday (AP)

• IBM stock hit an all-time high in its best trading day since 2000 (WSJ)

• Gold hit a record high as investors clamor for the safe-haven trade (Reuters)

• The European Central Bank cut rates on Thursday (Barron’s)

• Congressional offices are being warned not to use DeepSeek AI tools (Axios)

• Costco is raising pay for most US workers to over $30 an hour (Reuters)

• Wells Fargo’s CEO got a 7% raise in 2024 to hit $31.2 million (WSJ)

• UPS stock tanked double-digits Thursday after it announced it would slash Amazon deliveries by more than half (CNBC)

• Microsoft stock dropped more than 6% following its weak earnings outlook (Barron’s)

In case you missed it:

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Last thing:

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