Although Apple (AAPL 5.70%) recently reported strong fiscal third-quarter results, the stock struggled to gain traction on a tough day on Wall Street that was overshadowed by a weak jobs report. The stock is down nearly 20% on the year, as of this writing.
However, it was one of the company's best quarterly reports in quite some time. Let's see whether it's time to buy Apple's stock, with momentum starting to shift.
iPhone sales growth impresses
iPhones remain the biggest source of revenue for Apple. And while growth for Apple's iconic smartphone has been a bit lackluster over the past few years, that was not the case in fiscal Q3. iPhone sales jumped 13% year over year to $44.6 billion, which was well ahead of the $40.2 billion that analysts expected. It was the largest quarterly iPhone growth the company saw since 2021.
Apple credited the strong iPhone growth to the popularity of its latest model, the iPhone 16, compared to its predecessor. Much of this stemmed from current iPhone users upgrading their phones.
iPhones were not the only area of strength for the company. Mac sales climbed 15% year over year to $8.1 billion, led by its new M4 MacBook Air and robust growth in emerging markets. That was also well ahead of the $7.3 billion in sales analysts expected.
However, both iPad and wearable sales declined in the quarter. iPad sales sank 8% to $6.6 billion, despite the company introducing a new low-cost iPad model in March. Wearables sales, meanwhile, dropped nearly 9% to $7.4 billion.
Altogether, product segment sales as a whole rose by 8% to $66.6 million. Meanwhile, Apple said it incurred $800 million in tariff-related costs in the quarter. It expects that to rise to $1.1 billion next quarter. The company is looking to increase U.S.-based production over the next few years to help mitigate the impact. It also plans to invest $500 billion in the U.S., both in advanced manufacturing and artificial intelligence (AI).
In China, which has been a weak spot for the company, revenue rose by 4%, driven by iPhone and Mac sales. The company said its iPhone installed base reached an all-time high in the country, with the majority of buyers new to the brand. Meanwhile, iPhone 16 models were top sellers in Chinese cities.
Apple's service segment -- which consists of its App Store, iCloud storage, Google Search revenue sharing, Apple Pay, Apple TV, and more -- was once again a bright spot, with revenue climbing 13% to $27.4 billion. That was ahead of the $26.8 billion analyst consensus. Within the segment, App Store revenue grew by double digits, while iCloud revenue was called strong. This segment has much higher gross margins than Apple's larger product segment and has been a big driver of its earnings growth over the past few years.
Overall, Apple's revenue climbed by 10% to $94 billion, while its earnings per share (EPS) jumped 12% to $1.57. That easily surpassed analyst estimates for EPS of $1.47 on sales of $89.5 billion.
Looking ahead, Apple expects its revenue for the quarter ending in September to grow by mid- to high-single digits year over year, with services revenue to increase at a similar rate to fiscal Q3.
Image source: Getty Images.
Is it time to buy the stock?
Apple turned in great results, although much of this could have been due to consumers rushing out to buy iPhones ahead of tariffs. There were a lot of reports in the media about how high iPhone costs could soar if Apple decided to pass on tariff costs to the consumer, which likely led to many iPhone users deciding to upgrade their phones. While management estimated this would have a minimal effect, we'll have to see how much follow-through the company sees in the coming quarters.
That said, China was a bright spot, and it still has not even introduced Apple Intelligence -- its AI assistant -- to the country. Service revenue also continues to be a consistent, steady growth engine.
Turning to valuation, the stock trades at a forward price-to-earnings (P/E) ratio of around 26 based on fiscal 2026 analyst estimates (ending September 2026). That multiple is still a bit pricey for a company with a lot of question marks around AI and a fair amount of regulatory risk -- remember, a big chunk of its profits are at risk if a judge rules that its exclusive Google revenue-sharing agreement with Alphabet must end.
As such, I'm not tempted to buy into Apple's progress at this time and would like to see whether the company can follow through on this strong quarter.
