What we learned from Apple, Microsoft and Tesla’s latest results

Apple is selling products and services by the bucketload. It has set new records for revenue and earnings and has declared the final three months of 2024 to have been its best quarter ever.

The company has now beat earnings expectations for eight quarters in a row and these factors helped to drive up the share price. So far, so good – but there is a lingering feeling that the business could be doing a lot better when it comes to innovation and strategy.

The roll-out of AI services on iPhone 16 hasn’t exactly gone smoothly. Having been late to the AI party in the first place, Apple still hasn’t rolled out AI services in any non-English language. This cautious pace seems odd when you consider AI has exploded onto the scene and consumers increasingly have a lot of choice for AI-enabled devices. It’s like a carrot dangled in front of Apple and it only wants to nibble at it, rather than devour the whole thing.

Consumers need a reason to upgrade their phone, otherwise they’re going to stick with their current model given how even the cheapest devices are fairly sophisticated these days. Apple is clearly hoping its AI services will be the catalyst to drive handset upgrades, but it’s going about it in a strange way.

China remains one of Apple’s biggest problems. Competition is fierce from domestic smartphone makers Huawei and Xiaomi, and consumers aren’t spending with such confidence as pre-Covid days. It means Apple is riding uphill with considerable headwinds.

The iPhone is meant to be Apple’s bread and butter yet it’s no longer the big earnings growth driver. Group product revenue gains over the past quarter were predominantly driven by the iPad and Mac.

It’s lucky that Apple has a portfolio of items so it isn’t reliant on one product line, yet the fact the iPhone seems to be slipping in importance puts the pressure on the group to come up with something truly new, not simply an upgraded version of existing products. Android phones continue to grow in popularity and are generally cheaper than the iPhone – that’s a big problem for Apple.

Apple boss Tim Cook said on the conference call that there is ‘a lot of innovation left on the smartphone’. That suggest it still believes the iPhone can be much more useful to people’s lives than it is today, implying Apple will continue down the path of device upgrades rather than launching something completely different.

Microsoft

Pockets of negative points in its latest results knocked the share price for six, even though the company beat market estimates for sales and earnings for the third quarter in a row.

Investors were spooked by Microsoft’s slower growth with its Azure cloud computing arm. The AI revolution was meant to have driven companies around the world to upgrade their infrastructure and processing capabilities, theoretically making cloud computing services a hot spot for significant growth. That Microsoft ‘only’ delivered 21% revenue growth would suggest that large parts of the business world have been hesitant in committing to technology upgrades.

Microsoft is doing everything it can to help people adopt AI as fast as possible, be it through storage or software, but even revolutions don’t play out smoothly. There will always be bumps in the road.

Microsoft won’t be worried. This is only one set of quarterly results and it’s so engrained into people’s lives that it continues to be one of the biggest beneficiaries of the AI trend.

Even the emergence of Chinese AI company DeepSeek plays to its advantages, though that might not immediately seem to be the case. Competition always emerges when a certain area gets hot and bringing down the cost of running AI will broaden its appeal and reach to both consumers and businesses, making more people realise what’s possible. Microsoft’s army of software services are well positioned to help users embrace AI and it’s in the front pack of contenders to win the race.

While the attention remains on cloud computing and AI-related software and services, it’s worth noting that other parts of Microsoft are going through a transitory period. Gaming revenue declined by 7% in the period and Xbox hardware revenue fell by a dramatic 29%.

The gaming industry has been going through a hard time since getting a temporary boost during the Covid-19 pandemic. Microsoft seems to now be focusing more on games rather than pushing hardware.

Whereas 10 or 20 years ago, people yearned for new consoles on a regular basis, nowadays there is so much more choice in how to play games. From using a mobile phone, laptop or no doubt one of the existing consoles that already work perfectly fine in someone’s house, it’s no surprise that games console launches or upgrades are much slower these days.

Tesla

Tesla has missed earnings expectations in five out of the past six quarters.

The electric vehicle industry has spluttered over the past year or so as take-up has been slower than expected. At the same time, companies like Tesla, which had enjoyed a first-mover advantage, have seen the emergence of serious competition.

This cocktail of events has made life very hard and put pressure on Tesla to fight it out through price cuts, new models and more favourable financing deals.

Elon Musk’s vision seems to be centred on innovation and some of his ideas have backfired. He might be better off focusing on build quality to win the public’s trust and convince them a Tesla vehicle is something that will keep them on a road without problems.

Having initially fallen on the results, the shares subsequently moved higher. One explanation is that Musk raised hopes on the analyst conference call, saying the company’s work was setting the scene for ‘an epic 2026 and a ridiculous 2027 and 2028’.