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

Apple's App Store revenue saw a 4.9% month-over-month increase in May, exceeding historical trends and alleviating investor concerns regarding Services growth, according to JP Morgan analyst Samik Chatterjee. The growth in App Store revenue supported an acceleration of year-over-year revenue trends to 13.0% in May. Chatterjee maintains an Overweight rating on Apple, anticipating low-double-digit Services growth, though other research indicates potential headwinds for iPhone shipments due to tariff-related uncertainties and increased consumer costs.

Analysis

Apple's App Store demonstrated robust performance in May, with revenue increasing 4.9% month-over-month, significantly outpacing the historical average sequential uptick of 2.3% for this period, according to Sensor Tower data highlighted by JP Morgan. This strong MoM growth contributed to an acceleration in year-over-year App Store revenue trends, which rose to 13.0% in May from 11.8% in April. JP Morgan analyst Samik Chatterjee, maintaining an Overweight rating on Apple (AAPL), interprets these figures as supportive of Services revenue tracking towards low-double-digit year-over-year growth, potentially mitigating investor concerns stemming from Apple's lack of explicit guidance for the segment. Further bolstering this view, App Store downloads rebounded with a 2.0% month-over-month increase in May, contrasting sharply with a 4.6% decline in April and exceeding the historical average of a 0.1% decline; year-over-year, downloads grew 3.1%. However, this positive momentum in Services is juxtaposed with concerns over Apple's iPhone segment, as Counterpoint Research has lowered its 2025 global smartphone shipment growth forecast to 1.9% from 4.2%, citing tariff-related uncertainties and anticipating slowed Apple shipments if cost burdens are passed to consumers. IDC similarly projects modest 1.9% U.S. smartphone shipment growth in 2025 due to tariff impacts. Additionally, Deepwater Research suggests Apple requires increased investment over the next two years to perfect its AI strategy.

Key Decisions for Investors

• Investors should recognize the App Store's May outperformance as a positive catalyst for Apple's Services revenue, potentially easing concerns about the segment's growth trajectory in the near term.
• It is crucial to monitor developments regarding potential tariffs and their impact on iPhone pricing and demand, as revised global and U.S. smartphone shipment forecasts indicate significant headwinds for hardware sales.
• Consider the balance between the strengthening Services segment and the challenges facing iPhone shipments, alongside the anticipated need for increased AI investment, when assessing Apple's overall risk-reward profile.