While the topics of inflation, supply chain disruptions, and the COVID-19 pandemic dominate headlines, Apple (AAPL 0.81%), the largest technology company in the world by market capitalization, showcased that its products and services are in high demand during its stellar Q2 earnings report for the period ending March 26, 2022. After posting record revenues for the second quarter and beating Wall Street expectations on both the top and bottom lines, Apple is showing investors why it may be a compelling buy in an otherwise tumultuous stock market.

Let's dig into the report and analyze which areas of the business are thriving and what challenges Apple may face in upcoming quarters.  

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Image source: Getty Images.

Supply chain hiccups? Chip shortages? No problem

For the quarter ended March 26, Apple reported total revenue of $97.3 billion, up 9% year over year and a record for the period. The company's flagship product, the iPhone, stood out as a big winner.

Apple's Q2 revenue from the iPhone was $50.6 billion, an increase of 5% year over year and another record. Despite supply chain disruptions, the company experienced strong consumer demand for its new iPhone 13, as well as the iPhone SE, a lower-cost counterpart.

In addition to setting records in iPhone sales, Apple reported record revenue in its Mac division. Revenue from Mac products was $10.4 billion, up 15% year over year for the second quarter of fiscal 2022. These results are particularly encouraging given Apple's reliance on outsourced chip manufacturers and lingering issues such as inflation and supply chain constraints.

However, not all segments of the tech behemoth were immune to these challenges. Apple's other primary piece of hardware, the iPad, generated $7.6 billion in quarterly revenue, which was a decline of 2% year over year. Management explained that supply constraints were the driver of this decline. 

Although iPad sales were lighter than usual, Apple's wearables segment and its services business are operating at record highs. During the earnings call, leadership explained that the company's installed base of active devices reached all-time highs across each of Apple's major geographic segments and product categories. As a result, Apple enjoys powerful network effects by heightened customer engagement evidenced by paid subscription accounts achieving all-time highs during fiscal Q2. In particular, Apple's Chief Financial Officer Luca Maestri proudly highlighted that the service business reached an all-time revenue record of $19.8 billion in the current quarter, driven by the App Store, Apple Music, and cloud services.

Moreover, the company's wearables segment increased 12% year over year, reaching $8.8 billion in quarterly revenue. Maestri put this particular segment into perspective by explaining that growth in wearables has doubled over the last three years. Now it's roughly the same size as a Fortune 100 company.

The results above illustrate that Apple's products -- both hardware and services -- are in demand from consumers across the globe. Even though the stock is down roughly 20% year to date and 11% over the last month, investors should pay close attention to who is buying on the dip.

The Oracle is watching

Warren Buffett, nicknamed the Oracle of Omaha, is one of the most famous and prolific investors of all time. The investment side of Buffett's company Berkshire Hathaway initiated a position in Apple back in 2016. Over the last several years, Berkshire has continued to buy Apple stock and currently owns 5.5% of the company, according to public records. 

Buffett and his trusted investment counterpart Charlie Munger hosted their renowned annual shareholder meeting in late April. While some may have been distracted by the attendance of Apple Chief Executive Officer Tim Cook, keen investors learned that Buffett has continued his buying spree of the iPhone maker. During a recent interview with CNBC, Buffett acknowledged that he purchased another $600 million worth of Apple stock during the most recent quarter. 

Keep an eye on valuation

Apple's stock has been trading lower so far in 2022, but investors should keep the company's valuation in mind, compared to other big-tech giants. While tech cohorts Microsoft and Alphabet trade at a respective 27 times and 21 times trailing-12-month sales, Apple fits squarely in the middle at 24 times. However, while Microsoft and the Google parent posted year-over-year revenue growth of 18% and 23%, respectively, Apple's growth was roughly half at 9%. 

For this reason, one could argue that Apple's current share price is slightly expensive relative to its peers. Though there is some merit to this thesis, investors should look beyond the income statement when analyzing Apple.

For the second quarter, Apple generated a whopping $75 billion in operating cash flow, compared to $63 billion during the same period in the prior year. Moreover, Apple currently carries $28 billion of cash on its balance sheet, which the company plans to use for additional stock repurchases

The valuation multiples may suggest that Apple is expensive relative to its peers, but investors with long-term mindsets should remember that the company has several areas that should continue generating robust growth -- namely, wearables and services. Furthermore, as Warren Buffett continues to buy the stock as it declines further, investors may want to consider dollar-cost averaging while the company continues fighting inflation and supply chain woes.

Although these issues will likely persist in the next few quarters, Apple's management has done a tremendous job demonstrating it can maneuver around these hiccups and return value to shareholders.