AAPL Q3 Deep Dive: iPhone and Services Momentum Drive Broad-Based Growth Amid AI Investments

iPhone and iPad maker Apple (NASDAQ:AAPL) announced better-than-expected revenue in Q3 CY2025, with sales up 7.9% year on year to $102.5 billion. Its GAAP profit of $1.85 per share was 4.5% above analysts’ consensus estimates.

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StockStory’s Take

Apple’s third quarter saw positive market reaction, reflecting strong demand for its latest products and continued momentum in services. Management attributed the performance to the successful launch of the iPhone 17 lineup, robust MacBook Air sales, and double-digit service revenue growth. CEO Tim Cook highlighted, “We grew in the vast majority of markets we track and had September quarter revenue records in dozens of markets, including the U.S., Canada, Latin America, Western Europe, the Middle East, Japan, Korea and South Asia.” Persistent supply constraints on certain iPhone models limited upside, but did not dampen overall customer enthusiasm.

Looking ahead, Apple’s guidance is anchored by expectations for a record December quarter, driven by double-digit anticipated iPhone growth and sustained strength in services. Management pointed to a robust product lineup, expanded AI features, and ongoing investments in R&D as key factors. CFO Kevan Parekh noted planned increases in operating expenses, primarily for AI and product development, emphasizing, “We are significantly increasing our investments in AI, while continuing to invest in our product road map.” Apple also acknowledged ongoing supply constraints and tariff-related costs as factors to monitor in the quarters ahead.

Key Insights from Management’s Remarks

Management attributed the quarter’s results to strong product launches, higher iPhone upgrades, and accelerated services adoption, despite supply limitations and rising investments in AI.

• iPhone 17 Drives Demand: The launch of the iPhone 17 Pro and iPhone Air generated significant customer interest globally, with Cook citing “our strongest iPhone lineup ever,” and record upgraders, despite supply constraints on certain models.
• Services Outperformance: Services revenue grew 15% year-over-year, reaching all-time highs across the App Store, advertising, payment services, music, and video. Growth was broad-based and organic, with increased engagement from both new and existing users, as noted by Parekh.
• MacBook Air and Mac Momentum: Mac revenue rose 13%, underpinned by strong MacBook Air sales and double-digit growth in emerging markets. Nearly half of Mac buyers were new to the product, expanding Apple’s installed base.
• AI-Driven Product Enhancements: Apple’s new M5 chip and A19 Pro chip powered upgrades in Mac, iPad, and iPhone devices, enabling new AI features such as live translation and personalized health tracking, which management emphasized as differentiators.
• Rising R&D and Operating Expenses: Operating expenses increased 11% year-over-year, primarily driven by higher research and development spending on artificial intelligence, product advancements, and the expansion of Apple’s private cloud compute infrastructure.

Drivers of Future Performance

Apple’s outlook is shaped by expectations for heightened iPhone demand, strong services growth, and continued investment in AI and product development, amid ongoing supply and tariff challenges.

• Holiday Product Cycle Strength: Management expects the December quarter to benefit from the full launch of the iPhone 17 lineup, expanded Apple Watch offerings, and strong demand for AirPods Pro 3. Cook indicated, “We expect the December quarter’s revenue to be the best ever for the company and the best ever for iPhone.”
• Ongoing Services Expansion: Services revenue is projected to maintain double-digit growth, supported by a growing installed base, new Apple Pay markets, and increased adoption of bundled offerings such as Apple One and AppleCare One. Parekh highlighted that broad-based engagement should continue fueling the segment.
• Tariff and Supply Chain Risks: Management flagged $1.4 billion in expected tariff-related costs and persistent supply constraints on several iPhone 17 models. While these headwinds are being actively managed, Parekh acknowledged the impact on cost structure and operating margins, noting a careful balance between investment and profitability.

Catalysts in Upcoming Quarters

Looking ahead, the StockStory team will be monitoring (1) the ability of Apple to resolve iPhone 17 supply constraints and meet elevated holiday season demand, (2) the pace of adoption for new AI-powered features across devices and their impact on user engagement, and (3) the ongoing growth trajectory of services revenue amid macroeconomic and regulatory variables. Execution in these areas will be crucial for sustaining Apple’s growth.

Apple currently trades at $277.75, up from $271.38 just before the earnings. At this price, is it a buy or sell? Find out in our full research report (it’s free for active Edge members).

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