In CEO Tim Cook’s last earnings call, Apple (NASDAQ:AAPL) delivered another set of headline-beating results, but investors were looking beyond the June quarter. Instead, the market focused on slowing revenue guidance, supply constraints and rising component costs.
That saw the shares plunge more than 7% after-hours despite record revenue and profit.
Q3 results vs expectations
| Metric | Reported | Consensus | Verdict |
| Revenue | $109.4bn | ~$109.0bn | Beat |
| EPS | $2.02 | ~$1.89 | Beat |
| iPhone revenue | $54.3bn | Above expectations | Strong beat |
| Services revenue | $30.7bn | Slightly below expectations | Miss |
| Gross margin | 50.1% (48.1% ex tariff refunds) | Ahead | Beat |
Source: Apple, Reuters.
Why did the shares fall?
This was a classic case of good results but an underwhelming outlook.
The market had already priced in an exceptionally strong quarter after Apple’s shares rallied sharply this year and over the past month (+15%). Instead of focusing on record iPhone sales, investors concentrated on four issues:
- September-quarter revenue growth guidance of 9%-11%, below Wall Street expectations of roughly 12%.
- Management warned supply shortages for leading-edge semiconductor manufacturing would worsen.
- Memory prices continue rising rapidly as AI infrastructure absorbs global supply.
- Services growth slowed, disappointing investors who increasingly view Services as Apple’s highest-quality earnings stream.
What captured the market’s attention?
Ironically, the strongest business segment also became the biggest concern.
CEO Tim Cook revealed demand for iPhones and Macs was stronger than Apple itself expected, creating supply bottlenecks rather than weak demand. That is fundamentally positive, but investors worry Apple cannot manufacture enough premium products heading into the crucial holiday quarter.
The second major talking point was AI.
Apple highlighted its redesigned Siri AI platform unveiled at WWDC, but investors remain impatient compared with Microsoft’s Copilot ecosystem, Meta’s AI spending and Alphabet’s Gemini rollout. Markets increasingly want evidence that AI can generate new revenue rather than simply improve devices.
Guidance
Management expects:
- Revenue growth of 9%-11%
- Gross margin of 47%-48%
- Continued foreign-exchange headwinds
- Higher memory costs
- Greater supply constraints during the September quarter
Although still healthy, the guidance implied growth is slowing after an exceptionally strong June quarter.
What analysts are saying
Morgan Stanley
- Strong iPhone demand remains encouraging.
- Supply limitations are likely temporary.
- Long-term AI opportunity remains intact.
Wedbush
- Apple remains one of the biggest AI beneficiaries over the next several years.
- Investors should focus on the product cycle rather than one quarter’s guidance.
JPMorgan
- Results were excellent, but expectations had become extremely high.
- Services growth and September guidance explain the share price weakness.
Bernstein
- The installed base remains Apple’s greatest competitive advantage.
- Investors need clearer evidence AI will accelerate upgrade cycles.
Overall, analysts generally remain constructive over the medium term despite the disappointing market reaction.
Biggest concerns
- Slowing Services growth
- Supply shortages for advanced chips
- Rising memory costs squeezing margins
- AI monetisation remains uncertain
- Rich valuation leaves little room for disappointment
Biggest opportunities
- More than 2.5 billion active devices create a huge ecosystem advantage.
- AI-powered Siri could eventually drive a significant upgrade cycle.
- Continued expansion in India and emerging markets.
- Record operating cash flow supports ongoing dividend growth and buybacks.
- Apple remains one of the world’s strongest free-cash-flow generators.
Peer valuation
| Company | PE** | EV/EBITDA | FCF Yield |
| Apple | ~35x | ~26x | ~2.8% |
| Microsoft | ~23x | ~28x | ~2.5%* |
| Alphabet | ~20x | ~16x | ~0.6%* |
| Meta | ~16x | ~18x | ~0.06%* |
| Amazon | ~25x | ~22x | ~-0.3%* |
Approximate forward consensus valuations. *Near-term free cash flow temporarily depressed by record AI investment. **Stockopedia rolling 12-month forward data.
Apple continues to command a premium thanks to its ecosystem, cash generation and loyal customer base, although it is no longer obviously cheaper than other AI leaders.
Bull vs bear case
| 🐂 Bull case | 🐻 Bear case |
| Record iPhone demand suggests Apple’s ecosystem remains exceptionally resilient despite a mature smartphone market. | September-quarter guidance disappointed, implying growth will slow after an unusually strong June quarter. |
| More than 2.5 billion active devices provide a powerful platform to monetise AI features, Services and accessories. | Services growth slowed, raising concerns about Apple’s most profitable business segment. |
| Apple Intelligence and AI-powered Siri could trigger a multi-year upgrade cycle if new features prove compelling. | AI monetisation remains unproven, with Apple still perceived as trailing Microsoft, Meta and Alphabet. |
| Industry-leading cash generation supports continued dividend increases and one of the world’s largest share buyback programmes. | Supply constraints for advanced chips and components could limit production during the crucial holiday season. |
| Expansion in India and other emerging markets offers a long runway for iPhone adoption. | Rising memory and component costs threaten margins if Apple cannot fully pass higher costs on to consumers. |
| Premium brand and customer loyalty continue to support pricing power and industry-leading profitability. | Premium valuation leaves little room for execution missteps, making the shares vulnerable if growth disappoints further. |
Investor verdict
This was not a bad earnings report—far from it, but the market focused on slowing revenue guidance. Apple produced record June-quarter revenue, beat earnings expectations comfortably and demonstrated that demand for premium hardware remains exceptionally strong. The sell-off reflects investors’ tendency to price stocks based on the next quarter rather than the last one.
For long-term UK investors, the key question is whether Apple’s AI strategy can reignite sustained growth in Services and hardware upgrades. If it can, the current weakness may prove temporary. If AI adoption disappoints while supply constraints and cost inflation persist, Apple could struggle to justify its premium valuation relative to other mega-cap technology peers.
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