Apple earnings: Strong iPhone beat brings our valuation up and tariff costs prove light for now
We think Apple stock looks fairly valued.
Mentioned: Apple Inc (AAPL)
Key Morningstar metrics for Apple
- Fair Value Estimate: $210
- Morningstar Rating: ★★★
- Morningstar Economic Moat Rating: Wide
- Morningstar Uncertainty Rating: Medium
What we thought of Apple’s earnings
Apple AAPL‘s June-quarter results were well ahead of its guidance. Revenue rose 10% year over year to $94 billion, with iPhone revenue rising 13% year over year to $44.6 billion. Services revenue rose 13% to $27.4 billion. September-quarter guidance calls for mid- to high-single-digit growth.
Why it matters: iPhone revenue was $5 billion above our model, which we attribute both to strong demand and some tariff-related pull-in of future demand. We see management’s $850 million pull-in estimate as slightly conservative. Nevertheless, iPhone 16 unit sales exceeded our expectations.
- Tariffs were an 80-basis-point gross margin headwind in the quarter. Management guidance implies 100 basis points of impact in the September quarter. Apple’s relatively low tariff impact is largely due to its main products being exempt, which is at risk of changing in the future.
- Apple is investing more capital in artificial intelligence, going forward. We like this, but see it coming several years later than we’d like. We believe its AI software needs major improvements to be more compelling, but we don’t see AI as a significant disruptor to the iPhone in the medium term.
The bottom line: We raise our fair value estimate for wide-moat Apple to $210, from $200, after raising our iPhone unit growth forecast. We see a partial short-term lift from pull-in, but also model a durable lift from better upgrade demand in the medium term. Shares look fairly valued.
- We model a roughly 15% valuation risk if Apple’s products lose their tariff exemption, based on a potential 25% tariff on imports from India, where Apple sources nearly all of its US-bound iPhones. We think the firm could offset about half of this with modest price increases.
Coming up: We expect the iPhone 17 family to release in September, potentially with a new slim form factor. We have low-single-digit iPhone unit growth expectations in fiscal 2026 even with a new form factor, as unit sales will compare to the pull-in so far in 2025.
