Guotai Junan Securities: Apple (AAPL.US) FY3Q25 Earnings Surpass Expectations, but AI+Tariff Progress Still Matters

According to a research report released by Guotai Junan Securities, Apple (AAPL.US) announced its FY3Q25 earnings on July 31st. Revenue-wise, the company reported $940.4 billion in revenue for the quarter, exceeding the market's consensus expectation of $893.0 billion and also surpassing Apple's previous guidance for a mid-to-high single-digit percentage increase. The main driver of this strong performance was the impressive results from iPhone, Mac, and services businesses, which all exceeded expectations. This is the strongest quarterly revenue growth since FY1Q22.

Guotai Junan Securities' Key Points:

Event: Apple's FY3Q25 Earnings Surpass Expectations, Tariff Pressure Lessened. On July 31st, Apple announced its FY3Q25 earnings. Revenue-wise, the company reported $940.4 billion in revenue for the quarter, exceeding the market's consensus expectation of $893.0 billion and also surpassing Apple's previous guidance for a mid-to-high single-digit percentage increase. The main driver of this strong performance was the impressive results from iPhone, Mac, and services businesses, which all exceeded expectations.

Next Quarter Guidance Surpasses Expectations: Guidance for FY4Q25 Revenue is Mid-to-High Single-Digit Percentage Growth, with Tariff Pressure Expected to Increase Costs by $1.1 billion. Despite considering the impact of tariffs on some related demand shifting forward, Apple still expects its total revenue to achieve mid-to-high single-digit percentage growth in the next quarter. The guidance for services business revenue is expected to remain around 13% year-over-year (YoY) growth, assuming a stable global tariff policy and no significant macroeconomic deterioration, as well as the continued effectiveness of Google's search income sharing protocol. Operating expenses are guided to be between $156-158 billion, with an effective tax rate of approximately 17% (excluding minor influence from potential valuation adjustments for minority stake investments).

iPhone Revenue Doubles-Digit Growth, China Market Performance Achieves a Turnaround. FY3Q25 iPhone revenue reached $445.8 billion (YoY+13%), significantly exceeding the market's consensus expectation of $402.2 billion (YoY+2.5%). This represents the highest quarterly revenue growth since the same period last year. According to IDC, global iPhone shipments in 2Q25 were 46.4 million units, with a YoY increase of 1.5% (vs global smartphone shipments' YoY increase of 1.0%). The main drivers of this strong performance were: 1) consumer demand front-loading due to high tariff concerns and the new iPhone 16 SE product boost; 2) outstanding China market performance, driven by national support policies for mobile phones +618 promotional sales during the quarter, which led to a YoY revenue growth of 4% in Greater China, achieving positive growth for the first time in two years. In Greater China, iPhone installations and upgrades reached new highs.

Mac Business Revenue Achieves Near-15% Year-Over-Year Growth, iPad Demand Remains Low. Mac: FY3Q25 revenue from Mac business was $80.5 billion (YoY+14.8%), significantly exceeding the market's consensus expectation of $72.6 billion. The main driver of this strong performance was the new MacBook Air and Mac Studio products with M4 chip, as well as Mac series growth in emerging markets and user numbers, both achieving double-digit increases. iPad: FY3Q25 revenue from iPad business decreased, reaching $65.8 billion (YoY-8.1%), partly due to high base effects from the release of iPad Air/Pro during the same period last year. Although the new low-price iPad Air product did bring some growth momentum, it was not sustained in FY3Q25, indicating overall iPad product demand remains relatively weak.

Wearable Business Faces Pressure, Revenue Below Market Expectations. FY3Q25 revenue from wearable devices and other businesses reached $74 billion (YoY-8.6%), below the market's consensus expectation of $77.8 billion. The main driver of this decline was the high base effects from product releases in 2024. Despite this, Apple will continue to focus on Enterprise applications for Vision Pro and maintain visionOS updates to drive the deployment of spatial computing.

Services Revenue Continues Growth Trend, Reaches New High. FY3Q25 services revenue reached $274.2 billion (YoY+13.3%), exceeding the market's consensus expectation of $268 billion. Despite facing challenges from the US App Store allowing external links, Apple's services business still achieved a high gross margin of 75.6% and contributed approximately 29% to total revenue/47% to operating profit. FY3Q25 iCloud subscription users continued to grow, and App Store revenue reached double-digit growth, driving profitability.

Investment Recommendations:

Guotai Junan Securities believes: 1) Apple's FY3Q25 earnings report exceeded expectations, showcasing the company's strong ability to absorb shocks. This is backed by Apple's core products' basic resilience, software services ecosystem synergy, and global market strategy advantages, which are also key competitive advantages.

2) However, Guotai Junan Securities believes that the market expects more progress in AI, which is a key driver of Apple's stock price and its ability to break new highs. Compared with other manufacturers, Apple's core AI development advantage lies in its edge AI capabilities, specifically reflected in multiple hardware platforms + self-developed chip performance guarantees + private cloud architecture security and privacy features. However, Apple's AI progress has been slow, and the market is still expecting more personalized Siri functionality, which will be delayed until 2026. Currently, Apple Intelligence is focused on writing, visual intelligence, etc.

3) In the future, we must continue to pay attention to tariff pressure and the risk of Google's antitrust case being resolved. The US government has already announced new tariffs in India, which may further intensify tariff pressure; Additionally, we must also monitor the outcome of Google's antitrust case, as one key issue is whether Google can still be used as the default search engine for Safari browsers. According to Caixin information, this agreement only accounts for about 6% of Apple's revenue but contributes approximately 20% to its operating profit.

Forecast and Analysis: Considering the company's FY1-3Q25 earnings and Apple's strong ecosystem resilience, as well as the company's continued focus on product innovation, market expansion, and service optimization, Guotai Junan Securities has raised its forecast for Apple's GAAP net income to $1.104 billion in FY2025, $1.128 billion in FY2026, and $1.169 billion in FY2027 (up 8.7%, 14.3%, and 20.8% respectively from the previous forecast), while maintaining a "Buy" rating.

Risks: Tariff policy changes, macroeconomic downturns, geopolitical risks, AI technology upgrade risks, market competition intensification risks, and regulatory monitoring risks.