Apple App Store Sales Jump In May, Boosting Outlook For Services Growth

JPMorgan analyst Samik Chatterjee maintains an Overweight rating on Apple, citing strong App Store revenue growth in May, with revenue up 13% year-over-year, supporting expectations for low-double-digit Services growth. App Store downloads also saw positive momentum. However, Counterpoint Research lowered 2025 global smartphone shipment growth expectations due to tariff-related uncertainties, potentially impacting Apple's iPhone sales, while Deepwater Research emphasizes the need for increased AI investment.

Analysis

JPMorgan analyst Samik Chatterjee maintains an Overweight rating on Apple Inc. (AAPL), supported by robust App Store performance in May. Sensor Tower data indicates App Store revenue increased by 4.9% month-over-month, substantially exceeding the historical average sequential uptick of 2.3% for the April-May period. This performance contributed to an acceleration in year-over-year revenue growth to 13.0% in May, compared to 11.8% in April. These trends support Chatterjee's forecast for low-double-digit year-over-year growth in Apple's Services segment, potentially mitigating investor concerns stemming from the lack of explicit company guidance. Furthermore, App Store downloads rose 2.0% month-over-month in May, reversing a 4.6% decline in April and outperforming the historical average 0.1% sequential decline. Year-over-year, App Store downloads increased by 3.1% in May. However, this positive services momentum is contrasted by headwinds in the smartphone market. Counterpoint Research has lowered its 2025 global smartphone shipment growth forecast from 4.2% to 1.9%, citing tariff-related uncertainties, and anticipates a slowdown in Apple's shipments if cost burdens are passed to consumers. Similarly, IDC projects U.S. smartphone shipment growth at 1.9% in 2025, down from 3.3% in 2017. Concurrently, Deepwater Research highlights the need for Apple to perfect its AI strategy within approximately two years, which will likely necessitate increased investments.

Key Decisions for Investors

• Investors should closely monitor Apple's upcoming Services revenue disclosures, as the robust May App Store data suggests potential upside to current consensus estimates for the segment, aligning with JPMorgan's positive outlook.
• Consider the divergent trends between strong Services segment growth and potential headwinds for iPhone shipments due to tariff uncertainties and a decelerating global smartphone market when evaluating overall risk-reward for Apple.
• Assess Apple's upcoming announcements regarding its AI strategy and associated investment levels, as successful execution in artificial intelligence is increasingly critical for sustaining long-term growth and addressing challenges in hardware segments.