Apple (AAPL) : Mixed Stock Sentiment, Its a Buy for New Information
What We Thought of Apple’s Fiscal Q3 Earnings
Apple’s June-quarter results were strong, highlighted by total revenue rising 16% year over year to $109.4 billion and 22% year-over-year growth in iPhone revenue. September guidance is weighed down by a combination of supply constraints, memory inflation, and foreign exchange headwinds.
Why it matters: The iPhone 17 continues to benefit from immense demand, as does the MacBook Neo. We expect supply constraints and memory inflation to weigh on results through 2027, but we expect Apple’s recent pricing increases to help mitigate the impact.
We model a growth headwind of about 3% in the September quarter and fiscal 2027 from supply constraints, primarily due to tight global chip supply amid demand for artificial intelligence. Demand remains strong, and we still expect Apple to grow nicely despite these constraints.
Adjusting for tariff refunds, product gross margin dipped 230 basis points sequentially in June due to memory inflation, and we expect another 250-basis-point dip in September. We expect pricing to limit the impact of memory beyond September, but still model a 200-basis-point headwind in 2027.
The bottom line: We trim our fair value estimate for wide-moat Apple to $285 from $290 to reflect short-term supply constraints and memory cost pressures. Shares are down 7% in the aftermarket, but remain lightly overvalued to us.
We still expect double-digit growth in 2027, led by pricing increases. June prices rose by 15% to 25%, and there may be another hike in the fall with new products. These help to partially offset memory inflation, while Apple shares some of the pain on gross margin.
In 2028, we expect relief to both supply constraints and profitability via expanding supply, particularly for memory. Longer-term, we believe Apple’s price increases can benefit margins once memory prices come back to earth.
Fair Value Estimate for Apple
Apple’s long-term fair value estimate of $285 per share implies a fiscal 2026 price/earnings multiple of 32 times, a fiscal 2026 enterprise value/revenue multiple of 8 times, and a fiscal 2026 free cash flow yield of 3%. We project 9% compound annual revenue growth for Apple through fiscal 2030. The iPhone will be the most significant contributor to revenue over our forecast, and we project 10% growth in iPhone revenue over the next five years, including superb growth above 20% in fiscal 2026. We forecast gross margins to rise past 50% in fiscal 2030, up from 47% in fiscal 2025.
We believe Apple can see margin expansion from a higher mix of higher-margin hardware, like iPhone Pro models, and services. In the short term, we see modest margin pressure from rising memory prices, but expect Apple to continue to navigate these well and maintain healthy margins. We observe robust R&D growth in fiscal 2026, which we think is ramping up Apple’s internal investments in AI and AI-centric devices for the future.
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