AAPL Q2 Deep Dive: AI Investments, Tariff Pressures, and Product Upgrade Records

iPhone and iPad maker Apple (NASDAQ:AAPL) beat Wall Street’s revenue expectations in Q2 CY2025, with sales up 9.6% year on year to $94.04 billion. Its non-GAAP profit of $1.57 per share was 10.1% above analysts’ consensus estimates.

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StockStory’s Take

Apple’s second quarter results exceeded Wall Street’s expectations for both revenue and non-GAAP profit, yet the market reacted negatively. Management attributed the quarter’s performance to strong global demand for iPhone 16, Mac upgrades, and double-digit Services growth. CEO Tim Cook emphasized that “growth accelerated in the vast majority of markets we track,” driven by robust upgraders in key products. However, management cited higher tariff-related costs and noted that a portion of demand may have been pulled forward into the quarter by tariff discussions.

Looking ahead, Apple’s guidance is shaped by continued investment in artificial intelligence (AI), evolving global tariffs, and the ramp of new product features. Management expects AI to be embedded across devices and platforms, with significant resources allocated to AI infrastructure and the rollout of personalized Siri capabilities. CFO Kevan Parekh noted that expected gross margins will be pressured by increased tariff costs, while Tim Cook reiterated that supply chain adjustments and ongoing U.S. investments are central to managing these headwinds. The company foresees Services growth remaining steady, provided current agreements with partners are maintained.

Key Insights from Management’s Remarks

Management credited the quarter’s outperformance to iPhone 16 upgrades, MacBook Air adoption, and Services momentum, while highlighting the impact of tariffs and shifting demand patterns.

• iPhone 16 upgrade momentum: The iPhone 16 family saw double-digit growth over the previous generation, with a June quarter record for upgraders. Cook emphasized strength across all regions, particularly in emerging markets and noted the milestone of shipping the 3 billionth iPhone.
• MacBook Air and Mac upgraders: Mac revenue climbed due to the popularity of the M4 MacBook Air and continued migration to Apple silicon. Management reported record numbers of Mac upgraders and strong adoption among customers new to the platform, especially in China and other emerging markets.
• Services expansion and engagement: Services revenue achieved an all-time high, fueled by double-digit growth in developed and emerging markets. Key drivers included increased iCloud subscriptions, App Store momentum, and strong growth in paid accounts and subscriptions across Apple platforms.
• Tariff-related headwinds: Tariff costs totaled $800 million for the quarter and are expected to rise to $1.1 billion in the next quarter. Management is responding by optimizing supply chains and investing in U.S. manufacturing and materials sourcing, including a $500 billion U.S. investment plan over four years.
• AI and platform integration: Apple significantly increased AI-related capital spending, focusing on on-device and cloud-based Apple Intelligence features. Over 20 AI features—such as visual intelligence and writing tools—were launched, with more planned as part of a broader push to embed AI across hardware and software.

Drivers of Future Performance

Apple expects future performance to be shaped by AI-driven product innovation, ongoing tariff costs, and steady Services growth.

• AI feature deployment: Management is prioritizing the integration of personalized AI capabilities, such as a revamped Siri and new productivity tools, across iOS, macOS, and iPadOS. Cook stated, “We are embedding AI across our devices and platforms,” with significant investment in both in-house and hybrid cloud infrastructure.
• Tariff and supply chain pressures: Tariff expenses are projected to increase, with ongoing supply chain adjustments to offset these costs. Cook noted that Apple is expanding U.S. manufacturing and sourcing, as well as exploring further supply chain optimizations to manage cost pressures.
• Resilient Services outlook: Services revenue is anticipated to grow at rates similar to the latest quarter, supported by a growing installed base and higher engagement. Parekh cautioned that this outlook assumes current agreements with partners, such as Google, remain unchanged, representing a key risk to the segment’s profitability.

Catalysts in Upcoming Quarters

In the coming quarters, the StockStory team will be watching (1) the pace and breadth of AI feature adoption across Apple’s devices, (2) how Apple manages rising tariff-related costs and further localizes its supply chain, and (3) whether Services can sustain double-digit growth amid evolving regulatory and partnership risks. Progress in U.S. manufacturing investments and new product launches will also be key milestones.

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