• Fair Value Estimate: $200.00
• Morningstar Rating: ★★★
• Economic Moat: Wide
• Morningstar Uncertainty Rating: Medium

What We Thought of Apple’s Earnings

Apple’s March-quarter revenue rose 5% year over year to $95.4 billion, with iPhone revenue rising 2% to $46.8 billion. Gross margin rose 50 basis points year over year to 47.1%. June-quarter guidance calls for modest year-over-year revenue growth and sequential margin contraction.

Why it matters: Results and revenue guidance were positive to us, but margin guidance was weak, resulting from an estimated $900 million impact from US tariffs. Primarily, we see material risk for Apple from tariffs, both on profitability and longer-term demand.

• Apple’s core devices are currently exempt from US tariffs, and the June quarter impact is primarily from accessories. Nonetheless, Apple remains at risk of a policy change. Positively, most US iPhone units are imported from India, which faces a lower current tariff rate than China (10% vs 145%).

• Management noted no signs of customers accelerating purchases in advance of potentially higher costs from tariffs. We still surmise this is happening, but mostly on the margin. We also like that Apple is building up its own inventory to bring in lower-cost products as a precautionary measure.

The bottom line: We maintain our $200 fair value estimate for wide-moat Apple. We lowered our short-term profit forecast to reflect direct tariff costs but maintain our base-case expectation for Apple to earn an exemption from US tariffs in the long term. We see shares as fairly valued.

• We estimate a 25% gross downside risk to earnings and Apple’s intrinsic valuation if it were to lose its exemption and face the full brunt of tariffs. This gross estimate assumes no mitigation actions from Apple, and a 145% rate for imports from China.

• We wouldn’t expect Apple to swallow this entire downside risk, as we would expect the firm to raise prices in the United States and accelerate moving US import production into other countries like India.

Our Valuation of Apple Stock and the Outlook Going Forward

• We think Apple is fairly valued after a slight selloff since its results.

• We generally think the market is pricing in low probability of the company facing the full brunt of tariffs, as we are. Our base case remains for Apple to earn a long-term exemption from tariffs.

Apple Stock Price

undefined

Fair Value Estimate for Apple

With its 3-star rating, we believe Apple stock is fairly valued compared with our long-term fair value estimate of $200 per share, which implies a fiscal 2025 price/earnings multiple of 27 times, a fiscal 2025 enterprise value/revenue multiple of 7 times, and a fiscal 2025 free cash flow yield of 4%. Against our estimate of fiscal 2026 earnings, our valuation implies a price/earnings multiple of 23 times.

We project 7% compound annual revenue growth for Apple through fiscal 2029. The iPhone will be the greatest contributor to revenue over our forecast, and we project 6% growth for iPhone revenue over the next five years. We expect this to be driven primarily by unit sales growth, with modest pricing increases. We think pricing increases will be driven primarily by a mix shift toward the more premium Pro models.

Read more about Apple’s fair value estimate.

Economic Moat Rating

We assign Apple a wide economic moat rating, stemming from customer switching costs, intangible assets, and a network effect. In our view, Apple’s iOS ecosystem extends far-reaching, sticky tendrils into customers’ wallets, entrenching customers with software capabilities and integration across disparate devices like the iPhone, Mac, iPad, Apple Watch, and more.

We also see immense design prowess at Apple, most impressively from deep integration of hardware, software, and semiconductors to create best-of-breed products. Finally, we see a virtuous cycle between Apple’s affluent customer base and vast ecosystem of developer partners. These moat sources elicit great profitability and returns on invested capital. In our view, Apple can leverage these moat sources into continued economic profits over the next 20 years, more likely than not.

Read more about Apple’s economic moat.

Financial Strength

We expect Apple to focus on using its immense cash flow to return capital to shareholders while increasing its net leverage over the medium term. Apple has a terrific balance sheet, with a net cash position of $50 billion as of September 2024. Management has laid out a goal to become cash neutral eventually, with no set timetable. We model it to hit this target near the end of the decade. Since announcing the goal in 2018, Apple has reduced its net cash position by more than half, from over $100 billion.

Read more about Apple’s financial strength.

Risk and Uncertainty

its reliance on consumer spending, for which there is great competition and cyclicality. Apple is at constant risk of disruption, just as the iPhone disrupted BlackBerry in the budding smartphone market. The iPhone could be unseated by a new device or “superapp.” We view the firm defending against this risk, however, by introducing new form factors (like a watch and an augmented reality headset) and selling an ecosystem of software and services on top of hardware.

We also see geopolitical risk arising from Apple’s supply chain. It is heavily dependent on Foxconn and Taiwan Semiconductor, or TSMC, for its assembly and chip production, respectively. The majority of iPhones are produced at a megafactory in China by Foxconn, and the majority of Apple chips are produced in Taiwan by TSMC. If there were a souring of relations between the US and China, or if China threatened Taiwan, Apple could see a severe hit to its supply. Additionally, the Chinese government has recommended government officials not conduct business on iPhones, which presents a current and potential future risk to Apple’s revenue in China.

Read more about Apple’s risk and uncertainty.

AAPL Bulls Say

• Apple offers an expansive ecosystem of tightly integrated hardware, software, and services, which locks in customers and generates strong profitability.

• We like Apple’s move to in-house chip development, which we think has accelerated its product development and increased its differentiation.

• Apple has a stellar balance sheet and sends great amounts of cash flow back to shareholders.

AAPL Bears Say

• Apple is prone to consumer spending and preferences, which creates cyclicality and opens the firm up to disruption.

• Apple’s supply chain is highly concentrated in China and Taiwan, which opens up the firm to geopolitical risk. Attempts to diversify into other regions may pressure profitability or efficiency.

• Regulators have a keen eye on Apple, and recent regulations have chipped away at parts of Apple’s sticky ecosystem.

This article was compiled by Gautami Thombare.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.