Apple: Decelerating AppStore Growth Could Hold Back Services Upside, UBS Says

Why It Matters

The slowdown curtails the upside potential of Apple’s high‑margin Services business, raising questions about the sustainability of its AI‑driven revenue boost and its impact on earnings forecasts.

Key Takeaways

• May App Store revenue grew ~3% reported, down 150 bps from April.
• U.S. App Store sales fell ~7% in May, dragging overall growth.
• Generative AI revenue growth slowed to 94% YoY from 190% in Jan.
• UBS keeps Services forecast 14% and $296 price target despite slowdown.

Pulse Analysis

Apple’s App Store, a cornerstone of its Services segment, showed its first low‑single‑digit growth month in 2024, expanding roughly 3% on a reported basis in May. The dip was driven largely by a 7% contraction in U.S. sales, while foreign‑exchange‑neutral growth lingered at about 2%. On a quarter‑to‑date basis the store is tracking near 4% growth, and analysts anticipate a challenging 12% comparable‑period hurdle for June, signaling a potential inflection point for the platform’s revenue trajectory.

The slowdown matters because the App Store fuels a sizable share of Apple’s Services earnings, which have become a key growth engine after hardware sales plateaued. UBS noted that despite the softer App Store performance, consolidated Services growth remained robust at roughly 16% last quarter, allowing the firm to keep its 14% Services forecast intact. However, the generative‑AI segment—once surging at 190% year‑over‑year in January—has lost momentum, posting only 94% growth in May. This deceleration could limit the upside from AI‑related apps, a space investors hoped would offset slower traditional app sales.

For investors, the mixed signals translate into a nuanced outlook. While UBS maintains a $296 price target, reflecting confidence in Apple’s broader ecosystem and demand, the firm cautions that upside from the App Store is unlikely without a renewed AI growth engine. Competitors are intensifying AI integration, and Apple’s own AI strategy remains under scrutiny. Market participants will watch June’s comparable‑period results closely, as they will reveal whether Apple can reignite app‑store momentum or must lean more heavily on services like iCloud, Apple TV+, and its burgeoning wearables portfolio to sustain growth.