The Motley Fool on $AAPL (Nov 6, 2026)

okay, let's pave the way for a very exciting stock, Apple, right? Okay, I have to talk about another big technology company that just announced its earnings. And I'll be the first to admit it, and anyone who follows...or owns Apple knows that.

I mean, this isn't a company that makes direct profits from its AI services. In fact, the rise of artificial intelligence is driving gradual gains in the revenue of its devices and services.

Therefore, it is clear that Apple does not charge for AI features, but rather leverages them to accelerate many of its hardware upgrades. For example, there was strong demand for the iPhone 18 series and AI-powered Macs such as the Mac Mini and Mac Studio.

This helped Apple achieve a record financial year. It also receives substantial fees from the App Store when users subscribe to third-party generative AI applications such as Chat GPT or other apps via iOS.

So, it receives these app store fees when a user subscribes to an external generative AI application. Estimates suggest it exceeds one billion dollars annually. That's what matters to them.

Then they act as a major distribution gateway, of course, for more than two and a half billion active devices. Therefore, they are able to partner with or direct users to third-party AI models, such as Gemini, while generating revenue from services with high profit margins.

This is noteworthy because, although most of Apple's revenue and profits come from the hardware sector, with the iPhone still being Apple's best-selling product of all time, its services sector is the fastest growing.

It is experiencing gradual gains from these second- and third-order AI enablers. This is something noteworthy that may not be obvious if you follow Apple.

Of course, they have announced their revenues for fiscal year 2026 and the fourth quarter of it. Fourth quarter revenues totaled approximately $115 billion. This represents a 12% year-on-year increase.

It exceeded analysts' estimates. This was John Turnus' first earnings report since recently taking over from Tim Cook. Your earnings per share exceeded expectations. iPhone revenues reached approximately $58 billion.

The company delivered a strong performance in the last quarter of its fiscal year, with sales rising 17% year-on-year, exceeding expectations. Its services recorded a record high of approximately $32 billion, while Mac device revenues increased by 24%.

Therefore, Apple's performance was extremely strong, both on a quarterly and fiscal year level.

But one thing that didn't impress investors, and which we saw a reaction to shortly after Apple announced its earnings, was its expectation of record sales during the holiday season, while it pointed to the high costs of memory chips and the computing costs needed to redesign the Siri artificial intelligence system.

This is likely to negatively impact the expected profits from those record sales, especially at this time of year when the company is experiencing significant growth. The company also stated that it expects weaker results in sales of iPads and wearable devices, and in Greater China, which is a key market for Apple.

Interestingly, unlike many other companies... unlike other major technology companies, Apple does not spend huge sums on artificial intelligence. It does not develop its own artificial intelligence models, nor does it invest heavily in chips or data centers as many other companies do.

As I mentioned, most of its growth is gradual. This is the sector that still relies primarily on the classic iPhone. Apple has tried to reinvent the magic of the iPhone many times throughout its history, but we still see that flagship hardware products are what attract consumers time and time again.

I believe, in many ways, that this segment is one of the most predictable, and perhaps the most predictable, segments of the Mac 7. So, it's interesting. I don't necessarily think Apple needs to excel in artificial intelligence to remain a profitable company; it doesn't strive for that, nor does it focus on it to the same extent.

This is what we see happening with other major technology companies. They do not spend huge sums of money on artificial intelligence.

But on the other hand, and I think some of the apathy we've seen toward the stock in recent months, some investors may be wondering: "Is Apple's relatively cautious approach to artificial intelligence disciplined or risky?"

At a time when much of the excitement surrounding technology companies is attributed to the AI business, I tend to believe that Apple's approach suits its nature of work.

Apple's economics are completely different from Alphabet's, for example. Alphabet spends huge sums on AI infrastructure, and is penalized when a segment of its core business shows the first signs that AI may be slowing its growth a little.

Apple, on the other hand, spends relatively small amounts on AI infrastructure, but is penalized when its AI deployment costs impact profit margins. So, I think the market is volatile, as we have seen.

These two companies I talked about today are performing excellently, and I believe they are both profitable in the long run, but in very different ways.

I believe the reason Apple shares are trading at a high price-to-earnings ratio is that they generate significant cash flow and are considered a safe haven for investors at the moment.

In addition, who knows, perhaps in the event of a major market downturn, they will be able to use that liquidity to acquire two or three AI companies, and thus return to strong competition, I think, without having to exert much effort.