Apple Jumps 18% in Three Months: Buy, Sell or Hold the Stock?

Apple (AAPL) shares advanced 17.6% over three months, propelled by the iPhone 17 launch and a steady fiscal Q4 outlook, with iPhone sales increasing 13.5% year-over-year to $44.58 billion and fiscal 2025 Services sales projected to grow 12.6% to $108.29 billion. However, the company anticipates a $1.1 billion tariff impact in Q4, faces a stretched valuation with a P/S of 8.32x, and continues to lag key competitors in the AI domain, contributing to a Zacks #3 (Hold) recommendation despite positive contributions from Apple Intelligence and Services expansion.

Analysis

Apple (AAPL) shares have appreciated 17.6% over the past three months, outperforming the Zacks Computer and Technology sector, primarily driven by the launch of the new iPhone 17 series and a steady fiscal Q4 2025 outlook. iPhone sales grew 13.5% year-over-year to $44.58 billion, accounting for 47.4% of total quarterly revenue, while the company expects Q4 net sales to grow in the mid to high single digits.

The Services segment is a significant growth driver, projected to reach $108.29 billion in fiscal 2025, indicating a 12.6% year-over-year increase, bolstered by expanding Apple Intelligence availability and a strong content portfolio including Apple TV+. However, Apple anticipates a $1.1 billion negative impact from tariffs in Q4 FY25, which could temper overall performance.

Despite recent stock appreciation, AAPL shares have underperformed key AI competitors year-to-date, declining 2% while Microsoft and Alphabet gained 25% and 21.3% respectively, highlighting a lag in the AI domain. The stock's current forward 12-month price/sales (P/S) ratio of 8.32x is above the sector average of 6.73x, suggesting a stretched valuation and contributing to a Zacks #3 (Hold) recommendation.

While Apple Intelligence and Services expansion offer future tailwinds, the company's valuation and competitive position in AI present challenges. Gross margin is expected between 46% and 47% for the current quarter, slightly above the prior quarter's 46.5%, indicating stable profitability despite tariff pressures.

Key Decisions for Investors

• Monitor Apple's progress in the AI domain and its ability to innovate against competitors like Microsoft and Alphabet, as this remains a critical long-term growth factor.
• Evaluate the impact of the projected $1.1 billion tariff headwind on Q4 fiscal 2025 earnings and future guidance, balancing it against the robust growth in the Services segment.
• Consider the current stretched valuation, with a P/S of 8.32x compared to the sector's 6.73x, and assess if a more favorable entry point might emerge given the stock's underperformance against AI peers year-to-date.