Key Takeaways
- Revenue $99.2B (+4% YoY) beat consensus by $1.4B; GAAP EPS $1.78 beat by $0.06 with operating margin of 31.4% (highest March-quarter print since FY22).
- Services revenue hit a new all-time high of $27.8B (+13% YoY), the eighth consecutive quarter of low-double-digit-or-better growth, with paid subscriptions exceeding 1.1 billion and Services gross margin holding at ~74%.
- iPhone revenue of $52.5B (+5% YoY) was driven by mix toward iPhone 17 Pro/Pro Max and iPhone 17 Air, lifting blended ASP to >$925 from <$870 a year ago; Apple Intelligence is demonstrably extending the refresh cycle.
- Greater China revenue $16.8B (+5% YoY) returned to growth for the second consecutive quarter following the February 2026 Apple Intelligence rollout via Baidu and easing Huawei high-end pressure.
- Board authorized an incremental $110B in share repurchases and raised the dividend 4% to $0.27/quarter; Apple returned $31.5B in Q2 ($27.5B buybacks at ~$208 avg, $4.0B dividends).
- FY26 GAAP EPS estimate raised to $7.45 (from $7.15) and FY27 to $8.40 (from $7.95); $245 PT reflects ~29.2x FY27 EPS, below the 5-year average of ~31x.
Snapshot
| Metric | Actual | Consensus / Prior | Variance |
|---|---|---|---|
| Revenue | $99.2B | $97.8B | +1.4% / +$1.4B |
| GAAP Diluted EPS | $1.78 | $1.72 | +3.5% / +$0.06 |
| iPhone revenue | $52.5B | $51.4B | +2.1% |
| Services revenue | $27.8B | $27.0B | +3.0% |
| Gross margin | 47.0% | 46.7% | +30 bps |
| Operating income | $31.1B | $30.0B | +3.7% |
| FY26E Revenue ($B) | 418.0 | 410.0 (old) | +$8B |
| FY26E GAAP EPS | $7.45 | $7.15 (old) | +$0.30 |
| FY27E GAAP EPS | $8.40 | $7.95 (old) | +$0.45 |
| FY26E Free cash flow ($B) | 118.0 | 112.0 (old) | +$6B |
Detail
Apple delivered a textbook beat-and-raise quarter, with revenue of $99.2B (+4% YoY) marking the second-best March quarter on record and EPS of $1.78 expanding 8% on operating leverage and aggressive buybacks. The bullish thesis since the iPhone 16 launch — that the multi-year installed base refresh anchored on AI-eligible hardware would extend through FY26 — has been validated. Management disclosed the active installed base reached a new all-time high across every product category and major geography, surpassing 2.42 billion devices. Operating leverage came in better than modeled: gross margin of 47.0% expanded 40 bps YoY on richer Services mix, lower freight and component costs as DRAM/NAND pricing rolled over from the late-2025 peak, and the lapping of one-time warranty/inventory adjustments. iPhone revenue of $52.5B grew 5% YoY, exceeding our $51.4B model, with blended ASP now >$925 versus <$870 a year ago driven by iPhone 17 Pro/Pro Max and iPhone 17 Air mix; CFO Luca Maestri noted record iPhone installed base growth in every geographic segment. Services at $27.8B (+13%) marked a new all-time record with management citing record paid accounts, record paid subscriptions (1.1B+), and double-digit growth in App Store, advertising, AppleCare, iCloud, and Apple Music. Mac revenue $7.9B (flat YoY) reflected the lapping of the M4 launch comp; iPad $7.3B (-1.4%) was modestly below model on extended product cycles; Wearables, Home & Accessories $7.1B (-5.3%) remained pressured. Geographically, Greater China $16.8B (+5% YoY) returned to growth for the second consecutive quarter — a key pivot point in the AAPL narrative driven by (1) Apple Intelligence rollout in Mainland China launched February 2026 via a Baidu partnership and (2) plateauing Huawei high-end momentum as Apple cut prices selectively on the iPhone 17 base model. We continue to view Apple as the highest-quality compounding asset in mega-cap technology, with our thesis resting on four pillars: durable iPhone installed base in an AI-driven extended upgrade cycle, Services as a $120B+ annualized recurring business growing low-teens at 70%+ gross margin, best-in-class capital allocation returning ~$110B+ annually, and Apple Intelligence as a multi-year tailwind for both hardware refresh and Services. We move FY26 GAAP EPS to $7.45 (from $7.15) and FY27 to $8.40 (from $7.95) on stronger Services trajectory, Greater China stabilization, and the removal of the tariff-haircut overlay following the May 2026 US-China trade framework granting Apple a two-year exemption for India- and Vietnam-assembled iPhones. Our $245 12-month price target reflects ~29.2x FY27 EPS, conservative given the Services-driven mix shift, AI-enabled refresh visibility, and ~$110B/year capital return.
Risks
- Greater China — geopolitical reversal, tariff escalation, or renewed Huawei high-end momentum could compress iPhone unit volume by 5-8%.
- Apple Intelligence monetization — base case assumes free; if uptake of any future paid AI tier disappoints, the iPhone refresh narrative weakens into FY27.
- Regulatory — App Store / DMA enforcement in the EU, antitrust scrutiny on Google search distribution payments (~$25B annualized), and US v. Apple antitrust trial (mid-2027) all weigh on Services.
- Wearables segment continues to decline; failure to reignite Apple Watch unit growth or AirPods replacement cycles caps a previously double-digit growth segment.
- Macro — discretionary consumer spending pressure in Europe and emerging markets, lengthening replacement cycles to >4.5 years, would compress iPhone volumes.
Catalysts (Next 90 Days)
- WWDC 2026 (June 8-12) — iOS 27, expanded Apple Intelligence (multimodal), Vision Pro 2 unveil, EU/global Apple Intelligence rollout details.
- Q3 FY26 earnings (early August 2026) — first full quarter for Apple Intelligence in China; first sequential test of China stabilization narrative.
- US v. Google ruling on search distribution payments — if remedies disrupt Google’s $25B annual payment to Apple, Services revenue impact would be material.
- Vision Pro 2 launch (calendar window: late September 2026 with iPhone 18 cycle).
- Potential India manufacturing capacity expansion announcement — strategic positioning ahead of iPhone 18 ramp.