With Apple Starting to See iPhone Sales Momentum, Is Now the Time to Buy the Stock?

Apple reported strong fiscal Q3 results, surpassing analyst expectations with overall revenue up 10% to $94 billion and EPS rising 12% to $1.57. Key drivers included a 13% surge in iPhone sales to $44.6 billion and a 15% increase in Mac sales, alongside continued robust 13% growth in high-margin Services revenue to $27.4 billion. Despite this strong performance, which also saw 4% revenue growth in China, the stock struggled, reflecting investor concerns over sustained growth momentum, rising tariff costs ($800M in Q3, $1.1B projected for Q4), and potential regulatory risks, particularly regarding its Google revenue-sharing agreement.

Analysis

Apple's fiscal third-quarter results significantly surpassed analyst expectations, with revenue climbing 10% year-over-year to $94 billion and EPS increasing 12% to $1.57. This performance was primarily driven by a resurgence in hardware sales, as iPhone revenue jumped 13% to $44.6 billion—its strongest quarterly growth since 2021—and Mac sales rose 15% to $8.1 billion. The high-margin Services segment continued its consistent expansion, growing 13% to $27.4 billion and reinforcing its importance as a core profit engine. However, these positive results were offset by notable weaknesses, including an 8% decline in iPad sales and a 9% drop in the Wearables segment. Significant headwinds cloud the outlook, including mounting tariff-related costs, which hit $800 million in Q3 and are projected to rise to $1.1 billion in the next quarter. There are also material questions about the sustainability of the iPhone sales momentum, with concerns that it may have been a one-time surge driven by consumers buying ahead of potential price hikes. Furthermore, the stock's forward P/E ratio of 26 is considered elevated given the identified uncertainties around its AI strategy and a major regulatory risk tied to its revenue-sharing agreement with Alphabet.

Key Decisions for Investors

• Investors should weigh the strong Q3 earnings beat, driven by core iPhone and Services growth, against significant headwinds from rising tariffs and unresolved regulatory risks that could impact future profitability.
• It is critical to monitor iPhone sales in subsequent quarters to validate whether the recent 13% growth represents a sustainable trend or a one-off event potentially influenced by consumer anticipation of tariffs.
• Given the stock's valuation at a forward P/E of 26 and specific weaknesses in the iPad and Wearables segments, a cautious approach is warranted until there is greater clarity on margin pressures and the company's ability to maintain growth momentum.