Apple (AAPL)
TL;DR
Apple makes iPhone, Mac, iPad, Watch, AirPods + the Services that run on them for 2.5B+ active devices. Q2 FY2026 was a March-quarter record: revenue $111.2B (+17% YoY), EPS $2.01 (+22%), iPhone $57B (+22%), Services $31B all-time high (+16%), GM 49.3%. Stock currently $271 at 31x forward P/E(ttm). Big news: Tim Cook becomes Executive Chairman Sept 1; John Ternus named CEO; board added $100B to buybacks and dropped the "net cash neutral" target. Key risk: management warned memory costs will pressure margins increasingly beyond the June quarter.
Summary
| Finding | Assessment |
|---|---|
| 5-Year Stock Return | Stock currently $271, up ~91% from $142 (5 years ago). TTM OP $147.4B (Q2 FY2026); $153.5B implied for Q3 FY2026E. P/E 31x. Q2 op cash flow $28.7B; $15B returned in Q2 (incl 42M shares). |
| Business Model | World's most valuable company. Hardware + Services flywheel across 2.5B+ active devices. Q2 FY2026 mix: iPhone 51%, Services 28% (76.7% GM), Mac 8%, Wearables 7%, iPad 6%. Q2 revenue $111.2B (+17%). |
| Competitive Moat | WIDE Ecosystem lock-in across 2.5B+ devices. Apple Silicon (A19/M5) hardware advantage. App Store + Services at 76.7% GM. 99% iPhone satisfaction; over half of Mac/iPad/Watch buyers in Q2 new to product. |
| Past 5-YR Drivers | Services revenue +60% ($68B→$124B run-rate) at 76.7% GM, Apple Silicon ecosystem (M1→M5), gross margin expansion (44%→49.3%), operating leverage, and $850B+ cumulative buybacks reducing share count. |
| Recent Stock Move | Stock currently $271, vs $254 (Mar 2026) and $233 (Sep 2024). Held up post-Q2 print as Cook→Ternus transition + $100B buyback raise were absorbed. P/E 31x vs 5-year range 21x-39x. |
| Revenue Trend | FLAT Rev YoY: 17% (Q2 2026) → 17% (Q3 2026E). |
| Margin Trend | FLAT OM%: 32% (Q2 2026) → 32% (Q3 2026E). |
| TTM OP Trajectory | FLAT TTM OP QoQ: 4% (Q2 2026) → 4% (Q3 2026E). TTM OP $147,366M. |
| Key Opportunities | iPhone 17 supercycle (+22% in Q2) + Apple Intelligence/Google partnership + WWDC 2026 + Services records + Greater China +28%. Mac AI demand off the charts (MacBook Neo, M5). $100B fresh buyback authorization. |
| Key Risks | Memory costs "significantly higher" in Q3 and "increasing impact beyond" — primary GM risk. Mac/iPhone supply constrained for several months. Cook→Ternus CEO transition Sep 1. Tariff exposure (guidance assumes current rates). EU/App Store regulatory risk. |
| Catalysts | Q3 FY2026 actuals (guide +14-17% rev, GM 47.5-48.5%, OpEx $18.8-19.1B); WWDC 2026 in June (Apple Intelligence + dev tools); personalized Siri "this year"; CEO transition Sep 1; ongoing $100B buyback execution. |
| P/E(ttm) Valuation | MODERATE at 31x (5-year range: 21x-39x). Mid-range; justified by 17% growth, 49% GM, $100B+ annual capital returns. If iPhone 17 cycle extends through FY27, P/E could re-rate to 33-35x. If memory compresses margins and growth normalizes to 5-8%, P/E falls to 25-27x. |
Q2 FY2026 Key Data
- Revenue $111.2B (+17% YoY). March-quarter record, above guidance. Non-GAAP GM 49.3% (+110bps QoQ), EPS $2.01 (+22%), op cash flow $28.7B. FX was a +2.5pp tailwind.
- iPhone $57B (+22% YoY) led; Services hit all-time high $31B (+16%). Mac $8.4B (+6%), iPad $6.9B (+8%), Wearables $7.9B (+5%). Greater China +28%; H1 China +33%. Install base 2.5B+ devices, all-time high.
- Q3 FY2026 guided revenue +14-17% YoY, GM 47.5-48.5%, OpEx $18.8-19.1B. Memory costs significantly higher in Q3, partly offset by carry-in inventory. Board added $100B buyback authorization; dividend +4% to $0.27.
Key Takeaways from Earnings Call
- Tim Cook will transition to Executive Chairman on September 1, 2026, with long-time engineering leader John Ternus named CEO. Cook framed the timing as right because "the business has been performing extremely well" with "an incredible roadmap ahead." Apple emphasized continuity: same disciplined capital allocation philosophy under Ternus + CFO Kevan Parekh.
- Supply was constrained on iPhone (advanced-node SOC availability) and Mac (Mac mini, Mac Studio, MacBook Neo). Cook said Mac mini and Mac Studio "may take several months to reach supply-demand balance" because customer adoption of Apple silicon for AI/agentic workloads "is happening faster than what we predicted." MacBook Neo response "off the charts."
- Capital allocation reset: "Net cash neutral" target dropped — Apple will now evaluate cash and debt independently. Authorized additional $100B for buybacks, raised dividend 4% to $0.27. R&D scaling much faster than total OpEx as Apple "invests incrementally" in Apple Intelligence (A19/A19 Pro, M5) and the Google foundation-model collaboration. WWDC 2026 ahead.
Key Segments and Revenue Mix (Q2 FY2026)
| Segment | Revenue | % of Total | Key Details |
|---|---|---|---|
| iPhone | $57,000M | 51% | +22% YoY; March-quarter record; iPhone 17 family + 17e; supply constrained on advanced-node SOC |
| Services | $31,000M | 28% | +16% YoY; 76.7% GM; all-time high; advertising, App Store, cloud, TV+ all set records |
| Mac | $8,400M | 8% | +6% YoY; MacBook Neo + M5 launches; supply constrained; March-quarter record for new-to-Mac |
| Wearables, Home & Acc. | $7,900M | 7% | +5% YoY; Apple Watch Series 11 + Ultra 3 + SE; AirPods Max 2, AirPods Pro 3 launched |
| iPad | $6,900M | 6% | +8% YoY; M5-powered iPad Pro + A16 iPad; emerging-market double-digit growth |
| Total Q2 FY2026 | $111,200M | 100% | +17% YoY. GM 49.3%. EPS $2.01. Op cash flow $28.7B. $15B returned to shareholders. |
Business Model
SUPPLIERS
TSMC (Apple Silicon fab)
Samsung, SK Hynix (memory)
Foxconn, Pegatron (assembly)
Corning, Sony (components)
Components /
Assembly
→
APPLE
Apple Silicon (M5, A-series) design
iOS/macOS ecosystem + App Store
Apple Intelligence / AI
2.5B+ active device installed base
Hardware + Services flywheel
Products /
Services
→
$ Revenue
CUSTOMERS
2.5B+ device owners globally
Enterprise (Mac, iPad fleet)
Developers ($550B+ earned)
850M+ weekly App Store visitors
Advertisers (growing)
Moat Assessment: WIDE
- Apple's ecosystem lock-in across 2.5B+ active devices is the strongest consumer-tech moat in existence. 99% customer satisfaction on iPhone 17 family (451 Research); 97% Mac, 98% iPad, 96% Watch. More than half of Mac, iPad, and Watch buyers in Q2 were new to the product — the ecosystem keeps expanding even at saturation. Install base hit all-time high across every major category.
- Apple Silicon provides a structural hardware differentiation that widens over time. In-house chip design (A-series, M-series) delivers unmatched performance-per-watt, enabling product innovations competitors cannot match (iPhone Air thinness, Mac battery life, Neural Engine for AI). This vertical integration advantage compounds with each generation and extends to AI capabilities through Apple Intelligence.
- App Store and Services create a high-margin recurring revenue base with deep platform lock-in. 850M+ weekly App Store visitors, $550B+ developer earnings, and growing subscriptions (Apple TV+, Music, iCloud, Arcade) create an ecosystem where leaving Apple means abandoning apps, content, and data. Services at 26% of revenue with 75% GM provides earnings stability through product cycles.
Stock vs. Earnings — 5-Year Performance
- Stock currently $271, up ~91% from $142 (5 years ago). AAPL has nearly doubled over 5 years on the Services growth story plus the iPhone 17 cycle. The stock peaked at $272 in Q1 FY2026 (Dec 2025) and has held up post-Q2 earnings as the buyback raise + Tim Cook transition were absorbed without disruption.
- TTM OP grew from $108.9B (Q4 FY2021) to $147.4B as of Q2 FY2026 (+35%), with Q3'26E projected at $154.6B. Services revenue went from $68B to $109B (+60%) with margins now at 76.7%. Blended gross margin lifted from 44% to 49% (Q2 FY2026), more than offsetting modest product revenue growth and recent memory headwinds.
- Apple returned $15B in Q2 FY2026 alone ($3.8B div + $11.0B in 42M shares repurchased). Board added another $100B to the buyback program on top of remaining capacity; dividend raised 4% to $0.27. Net cash $62B; "net cash neutral" target dropped — debt and cash will be evaluated independently going forward.
Past 5-Year Key Drivers
- Services revenue grew 60% from $68B to $109B, becoming Apple’s highest-margin business at 75% GM. App Store, advertising, cloud services, and Apple TV+ drove consistent double-digit growth. Services now generates $82B in annual gross profit — more than most tech companies’ total revenue. The 2.5B+ installed base provides an annuity-like revenue stream that grows as engagement deepens.
- Apple Silicon transition (M1→M5) drove Mac resurgence and unified the ecosystem around in-house chips. Custom silicon provides performance, power efficiency, and cost advantages over Intel/Qualcomm. Mac revenue recovered from $29B to $34B with install base reaching all-time highs and ~50% new-to-Mac buyers. The silicon advantage extends to iPhone (A-series) and iPad (M-series), creating ecosystem lock-in.
- Gross margin expanded from 44% to 49% (Q2 FY2026) as Services mix shift and Apple Silicon cost advantages compounded. Services GM rose from 71% to 76.7%; Products GM held mid-to-high 30s despite tariffs. The blended margin improvement compounded into operating leverage: TTM OP grew from $108.9B to $147.4B (+35%) on cumulative revenue growth of mid-teens.
Quarterly Key Metrics
| USD | Q2'24 | Q3'24 | Q4'24 | Q1'25 | Q2'25 | Q3'25 | Q4'25 | Q1'26 | Q2'26 | Q3'26E |
|---|---|---|---|---|---|---|---|---|---|---|
| Quarter End | Mar 2024 | Jun 2024 | Sep 2024 | Dec 2024 | Mar 2025 | Jun 2025 | Sep 2025 | Dec 2025 | Mar 2026 | Jun 2026 |
| Stock Price | $170 | $217 | $233 | $250 | $222 | $205 | $255 | $272 | $254 | $271 |
| Stock QoQ | -8% | +27% | +7% | +7% | -11% | -8% | +24% | +7% | -7% | +7% |
| Rev YoY | -4% | +5% | +6% | +4% | +5% | +10% | +8% | +16% | +17% | +17% |
| OM% | 31% | 30% | 31% | 34% | 31% | 30% | 32% | 35% | 32% | 31% |
| R40 (Rev YoY + OM%) | +26% | +34% | +37% | +38% | +36% | +40% | +40% | +51% | +49% | +48% |
| TTM OP ($M) | 118,240 | 120,594 | 123,216 | 125,675 | 127,364 | 130,214 | 133,050 | 141,070 | 147,366 | 153,455 |
| TTM OP QoQ | 0% | +2% | +2% | +2% | +1% | +2% | +2% | +6% | +4% | +4% |
| FCF/OP ttm | 86% | 87% | 88% | 78% | 77% | 74% | 74% | 87% | 88% | 88% |
| Debt/EBITDA | 0.7x | 0.7x | 0.7x | 0.6x | 0.6x | 0.7x | 0.6x | 0.5x | 0.5x | 0.5x |
| P/E(ttm) | 26x | 33x | 38x | 39x | 34x | 31x | 34x | 34x | 30x | 31x |
Recent Stock Performance & Drivers
- Stock currently $271, vs $254 (Mar 2026 close) and $233 (Sep 2024). AAPL ran from $205 (Jun 2025) to $272 (Dec 2025) on the iPhone 17 cycle, gave back to $254 ahead of earnings, and rebounded post last quarter end as the Cook→Ternus transition + $100B buyback authorization were absorbed without disruption. P/E(ttm) at 31x.
- TTM OP grew from $123.2B to $147.4B (+20%) over 8 quarters, with $153.5B implied for Q3 FY2026E. Revenue growth reaccelerated from -4% (Q2 FY2024) to +17% (Q2 FY2026); blended GM expanded from 46% to 49.3%. Q2 FY2026 alone produced $28.7B operating cash flow — a March-quarter record. Current TTM OP $147,366M.
- Greater China +28% in Q2 (H1 +33%), iPhone +22%, Services all-time high $31B. iPhone 17 family is "the most popular lineup in our history" through the March quarter per Cook, with 99% U.S. customer satisfaction. China iPhone, Mac mini desktop, MacBook Air laptop were each the top model in urban China per Worldpanel.
Opportunities
- iPhone 17 supercycle still extending: Q2 +22% iPhone revenue and Q3 guided +14-17% total revenue. Apple set March-quarter records for upgraders and gained share per IDC. Customer satisfaction at 99%. Demand exceeds supply on advanced-node SOC; channels lean into Q3. iPhone 17 family is "the most popular lineup in our history" through Q2.
- Mac is the new AI engine: MacBook Neo + M5 family driving supply-constrained demand on Mac mini, Studio, and Neo. Cook says enterprises (Marsh, Perplexity) and education (Kansas City schools switching from Chromebooks/Windows) are choosing Mac for on-device AI. Mac mini production coming to U.S. (Houston) later 2026; Apple on track to buy 100M+ TSMC Arizona chips.
- Services hit $31B all-time high (+16%) with broad-based records; advertising scaling. 76.7% GM and rising. New ad inventory in App Store; Maps ads launching in U.S./Canada this summer. Apple TV with F1, MLS, MLB. Apple Business launched as enterprise platform. 2.5B+ install base provides annuity-like ARPU growth runway.
Challenges
- Memory costs the explicit margin risk: "significantly higher" in Q3 and "increasing impact" beyond. Q3 GM guide 47.5-48.5% (vs 49.3% Q2) reflects this. Cook flagged Apple "will look at a range of options" — a careful way of leaving pricing actions on the table. NAND/DRAM inflation could compress Products GM (38.7% Q2) further unless mix shift to Services offsets.
- Supply constraints span iPhone (advanced-node SOC) and Mac (mini/Studio/Neo). Cook said Mac mini and Mac Studio "may take several months to reach supply-demand balance" — Q3 guide is supply-limited, not demand-limited. iPad faces a difficult Q3 compare given last-year A16 launch. Any TSMC fab capacity disruption hits the iPhone P&L directly.
- Cook→Ternus CEO transition + dropping "net cash neutral" target add execution and capital-allocation uncertainty. Tim Cook has been CEO 15 years and shareholders have been rewarded with $1T+ in cumulative returns. Dropping the formal capital-structure target gives flexibility but removes a discipline mechanism. Tariff exposure remains (guidance assumes current rates).
Next 12 Months
- Q3 FY2026 guided +14-17% YoY revenue, GM 47.5-48.5%, OpEx $18.8-19.1B. Apple has consistently beaten guidance. Beat above 17% with GM >48.5% would extend the supercycle narrative and support P/E expansion toward 33-35x. GM compression below 47% from memory costs could push P/E back toward 27-28x.
- Personalized Siri "coming this year" + WWDC 2026 in June: the most anticipated AI catalysts. Cook said R&D is "accelerating much higher than the company" — investing incrementally in Apple Intelligence + the Google foundation-model collaboration. A meaningful Siri upgrade could drive an iPhone upgrade refresh and differentiate vs Android. WWDC will preview "AI advancements + new software/developer tools."
- $100B fresh buyback authorization on top of remaining capacity = sustained EPS support. Apple repurchased 42M shares ($11B) in Q2 alone. With "net cash neutral" target dropped, Apple has explicit flexibility to keep deploying buybacks aggressively even as net cash grows. CEO transition Sept 1 with John Ternus is a watch-event but framed for continuity.
Next 12-24 Months
- iPhone 18 cycle (Sep 2026 launch) tests whether iPhone 17 was one-quarter spike or multi-year wave. If AI features sustain demand, FY2027 revenue could clear $480B with double-digit iPhone growth. The 2.5B+ install base is the upgrade TAM; Greater China at +28%/H1 +33% reverses years of stagnation. Failure to extend would re-rate the multiple toward steady-state low-20s P/E.
- Services on track to ~$130B+ FY2027 with rising margins; advertising the growth lever. At Q2 FY2026 run-rate ($31B × 4 = $124B annualized) plus 16% growth, Services compounds toward $145B in two years. New App Store + Maps ad inventory, Apple Business platform, expanding TV+ sports rights, growing financial services all extend ARPU. Each $1 of annual ARPU on 2.5B devices = $2.5B revenue.
- Ternus-era discipline + flexibility: capital structure no longer pinned to net cash neutral. The transition removes both the founding-CEO premium and the formal capital-structure handcuffs. Ternus, with 25 years at Apple and a hardware-engineering background, signals continuity on product roadmap. The risk is that future buybacks/M&A swing larger and more variable than the disciplined 2018-25 era — markets will watch the first full year closely.
Core Metrics Scorecard
| Q4'21 | Q1'22 | Q2'22 | Q3'22 | Q4'22 | Q1'23 | Q2'23 | Q3'23 | Q4'23 | Q1'24 | Q2'24 | Q3'24 | Q4'24 | Q1'25 | Q2'25 | Q3'25 | Q4'25 | Q1'26 | Q2'26 | Q3'26E | |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Quarter End | Sep21 | Dec21 | Mar22 | Jun22 | Sep22 | Dec22 | Mar23 | Jun23 | Sep23 | Dec23 | Mar24 | Jun24 | Sep24 | Dec24 | Mar25 | Jun25 | Sep25 | Dec25 | Mar26 | Jun26 |
| R40 > 40% | ✅ | ✅ | ✅ | ✅ | ✅ | |||||||||||||||
| R40 accelerate | ✅ | ✅ | ✅ | ✅ | ✅ | ✅ | ✅ | ✅ | ✅ | |||||||||||
| TTM OP QoQ > 10% | ||||||||||||||||||||
| TTM OP QoQ accelerate | ✅ | ✅ | ✅ | ✅ | ✅ | ✅ | ✅ | ✅ | ✅ | |||||||||||
| TTM FCF/OP > 60% | ✅ | ✅ | ✅ | ✅ | ✅ | ✅ | ✅ | ✅ | ✅ | ✅ | ✅ | ✅ | ✅ | ✅ | ✅ | ✅ | ✅ | ✅ | ✅ | ✅ |
| Debt/EBITDA < 3.5 | ✅ | ✅ | ✅ | ✅ | ✅ | ✅ | ✅ | ✅ | ✅ | ✅ | ✅ | ✅ | ✅ | ✅ | ✅ | ✅ | ✅ | ✅ | ✅ | ✅ |
| Total passes | 3 | 3 | 2 | 2 | 4 | 2 | 4 | 3 | 4 | 4 | 2 | 4 | 4 | 3 | 2 | 4 | 2 | 5 | 3 | 3 |
| Stock QoQ | +3% | +25% | -2% | -22% | +1% | -10% | +32% | +18% | -10% | +7% | -8% | +27% | +7% | +7% | -11% | -8% | +24% | +7% | -7% | +7% |
| P/E(ttm) | 25x | 29x | 28x | 22x | 22x | 21x | 28x | 32x | 28x | 29x | 26x | 33x | 38x | 39x | 34x | 31x | 34x | 34x | 30x | 31x |
- Q2 FY2026 = 3 passes, down from 5 in Q1 FY2026 — R40 deceleration + TTM OP QoQ deceleration both fired off. R40 stayed >40% (51%→49%) but stopped accelerating sequentially. TTM OP QoQ slowed from +6% to +4% so acceleration also failed. Q3'26E projects 4 passes (TTM OP QoQ accel re-fires on Q3 guide). Steady-state Apple rarely scores above 4-5.
- FCF/OP and Debt/EBITDA have never failed in 20 quarters — a permanent 2-pass floor. FCF/OP has stayed above 74% throughout; Debt/EBITDA at 0.5-0.7x. The scorecard's variability is entirely driven by R40 (>40% only in strong product cycles) and TTM OP QoQ acceleration. TTM OP QoQ >10% has only fired once (Q1 FY2022), so the practical max is 5 passes.
- Stock's strongest rallies (+25% Q1'22, +32% Q2'23, +27% Q3'24, +24% Q4'25) all coincided with 4-5 passes. The Q1 FY2026 5-pass print preceded a +7% QoQ move; Q2 FY2026's drop to 3 passes coincided with -7% QoQ. If iPhone 17 cycle sustains and Q3 actuals beat the 4-pass projection, the stock could re-test $280+.
Chart: R40 vs Stock Price (Since 2020)
Chart: Scorecard Total Passes vs Stock Price (Since 2020)
Source: SEC EDGAR annual and quarterly filings, company earnings conference calls and presentations.
Disclaimer: This report is for educational purposes only. NO investment advice.