Apple is poised to reclaim its title as the world’s most valuable company from Nvidia, driven by robust demand for its new premium iPhone Duo and the strong performance of its high-margin services sector. The upcoming earnings report on November 2nd, with revenue expectations around $113 billion, is anticipated to be the catalyst for this shift as investors increasingly embrace consumer hardware.
While the iPhone Duo’s success highlights a revitalization in Apple’s high-end hardware, its services business, with significantly higher gross margins than hardware, is crucial for sustained growth and profitability. This momentum suggests a potential return for Apple to its former role as a leading indicator for the broader market.
Apple is on the verge of leapfrogging Nvidia to once again become the world's most valuable company, as tech investors pivot back to consumer hardware. The company's impending strong earnings report is widely seen as the crucial catalyst that could propel it over the top.
As of Friday, Apple's market capitalization stood at an impressive $5.05 trillion, trailing Nvidia's $5.10 trillion by a narrow margin. Apple shares have enjoyed a robust October, climbing 4%, while Nvidia's stock has faced headwinds, dropping 7% for the month amidst broader concerns about the AI financing landscape. This isn't the first time Apple has briefly surpassed Nvidia; it did so in July before dipping back down.
A significant driver of Apple's recent surge is the launch of the new iPhone Duo, which hit stores on Friday. Customers have been lining up, eager to purchase the device, and the enthusiasm surrounding this release has pushed Apple's shares to an all-time high this week, even as other segments of the tech sector struggle. The iPhone Duo is positioned as a premium offering, with prices starting at $1,999 and exceeding $3,000 for top-tier storage models. This strategy marks a departure from Apple's previous emphasis on more affordable devices for international markets. Demand has been exceptionally strong, with preorders selling out almost immediately after opening on October 16, leading to delivery estimates extending into January. Reports even suggest Apple has increased its production targets, signaling a revitalization of its high-end hardware business.
Beyond the successful hardware launch, attention is now turning to Apple's earnings report scheduled for November 2. Revenue expectations are set around $113 billion, aligning with Apple's earlier guidance for 9% to 11% year-over-year growth. While management's commentary on iPhone demand will be key, Apple's services business is increasingly viewed as a vital long-term growth driver. In fiscal 2025, services generated approximately $109 billion in revenue, representing about a quarter of Apple's total business. Critically, the services segment boasts gross margins of around 75%, significantly higher than the hardware business's roughly 37%. This disparity means that services contribute more than 40% of Apple's total gross profit despite its smaller share of overall revenue.
For some time, Apple was perceived as a defensive, quality-growth investment, overshadowed by the explosive growth of Nvidia and other AI-centric stocks. However, with Apple now leading the 'Magnificent Seven' and closing in on Nvidia's valuation, there's a growing sentiment that the market is beginning to fully appreciate the breadth and strength of its diversified business model. The pertinent question now is whether Apple can re-establish its historical role as the market bellwether. With a resurgence in hardware demand and a promising earnings report on the horizon, it wouldn't be surprising to see Apple once again become the focal point of global investor attention.
Jeff Kilburg, the founder and CEO of KKM Financial, authored this analysis. He brings over two decades of experience from the Chicago Board of Trade (CBOT) and Chicago Board Options Exchange (CBOE) floors. Disclosures: Kilburg holds Apple shares through his Essential 40 ETF. All opinions expressed are solely his and do not reflect those of CNBC or its affiliates.
